Clarification in respect of advertising services provided to foreign clients
The Central Board has issued a clarification in light of queries from trade and industry regarding advertising services provided by Indian companies to foreign clients. These clarifications aim to address confusion where some field formations are treating the place of supply of such services as within India, thereby denying export benefits to advertising agencies. The Board has issued these clarifications to ensure uniformity in the implementation of GST provisions across field formations, using its powers under section 168(1) of the CGST Act, 2017.
Overview of the Issue
Foreign companies or firms often hire Indian advertising agencies for promoting their goods or services. These agencies provide a one-stop solution, handling everything from media planning, investment, content creation, strategy, and media space procurement. After the services are rendered, the Indian advertising agency raises an invoice to the foreign client and receives payments in foreign exchange. The clarification addresses whether these services can be considered export of services and the treatment of the place of supply under GST.
Clarification on Issue 1: Can an Indian Advertising Agency Be Considered an “Intermediary” Under GST?
Under section 2(13) of the IGST Act, an intermediary is defined as a broker or agent who arranges or facilitates the supply of goods or services without providing them on their own account. In the case of advertising services provided by Indian agencies to foreign clients, the agencies enter into two distinct principal-to-principal agreements: one with the foreign client for the complete advertising service and one with media companies to procure space for displaying the advertisement.
Since these Indian advertising companies provide services directly to foreign clients and are not merely facilitating the supply, they are not considered “intermediaries” under the IGST Act. Therefore, the place of supply for these services should not be linked to the location of the supplier, as mentioned in section 13(8)(b) of the IGST Act.
Clarification on Issue 2: Can the Indian Representative or Target Audience Be Considered the “Recipient”?
As per section 2(93) of the CGST Act, the recipient of services is the person liable to pay consideration. In this scenario, the foreign client, not the target audience in India or any Indian representative, is liable to pay for the advertising services. Even if a representative in India interacts with the advertising company on behalf of the foreign client, this representative cannot be considered the recipient under section 2(93), as the invoice is raised directly to the foreign client, and payment is made by the foreign client in foreign exchange.
Clarification on Issue 3: Are These Services Performance-Based as per Section 13(3) of the IGST Act?
Section 13(3) of the IGST Act defines the place of supply for performance-based services. For services related to goods, where physical availability is required, section 13(3)(a) would apply. However, since advertising services do not involve the physical presence of goods, this provision does not apply. Similarly, under section 13(3)(b), services supplied to individuals requiring their physical presence do not cover advertising services. Therefore, these services fall under the default provision, section 13(2), where the place of supply is the location of the recipient.
Since the foreign client is located outside India, the place of supply for these advertising services is outside India, making them eligible for export benefits, provided the conditions under section 2(6) of the IGST Act are met.
Special Case: Advertising Agencies Acting as Intermediaries
There may be instances where an Indian advertising agency acts solely as an agent between the foreign client and media owners. In such cases, the media owner directly provides media space to the foreign client, and the advertising agency only facilitates this transaction. Here, the Indian agency can be considered an intermediary as per section 2(13) of the CGST Act, 2017. Consequently, the place of supply in such cases is determined by section 13(8)(b) of the IGST Act, i.e., the location of the supplier (the advertising agency).
Conclusion
In summary, Indian advertising agencies providing comprehensive advertising services to foreign clients are not considered intermediaries, and the place of supply is the location of the recipient (the foreign client). However, in cases where the agency merely facilitates the service, it may be considered an intermediary, and the place of supply would be within India.
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