CBIC issues clarification on place of supply for advertising services provided to foreign clients by Indian ad companies

By Pune Media On Sep 12, 2024 33

The Central Board of Indirect Taxes & Custom (CBIC) on Thursday clarified different taxation related issues concerning advertising services provided to foreign clients by Indian advertisement companies. This is based on GST Council’s recommendation as agreed upon in September 9 meeting.

The first issue is related to whether the advertising company can be considered as an “intermediary” between the foreign client and the media owner. The CBIC said the advertising company does not fulfil the criteria of ‘intermediary’ as it is involved in the main supply of advertising services, including resale of media space, to the foreign client on principal-to-principal basis.

The second issue is whether the representative of foreign clients in India or the target audience of the advertisement in India can be considered as the “recipient” of the services being supplied by the advertising company. The circular clarified that the recipient of the advertising services provided by the advertising company in such cases is the foreign client and not the Indian representative of the foreign client based in India or the target audience of the advertisements.

The third issue is whether the advertising services provided by the advertising companies to foreign clients can be considered as performance-based services as per IGST act. For this, the circular’s response is in the negative. Further, since the recipient of the advertising services in such scenario is the foreign client, who is located outside India, the place of supply of the said services appears to be the location of the said foreign client i.e. outside India and the said service can be considered to be export of services,” said the circular.

‘In right direction’

“Clarifications on critical aspects like Indian advertising agencies not being intermediaries while dealing with foreign clients on P2P basis, advertising services are not performance-based services and foreign clients paying in foreign currency being the actual recipients, have all paved the way for such services to qualify as exports and not liable to GST in India,“ said Harpreet Singh, Partner Indirect Tax, Deloitte India.

According to Harsh Bhuta, Partner, Bhuta Shah and Co LLP, by clarifying nuances, the government not only brings relief to the advertising industry but also sets a precedent for other industries—such as real estate and vouchers—that face similar issues, offering them hope for future clarity on their own tax treatment. This development is a step in the right direction for ensuring smoother compliance and reducing litigation in sectors facing tax ambiguity,” he said.

Darshan Bora, Partner at Economic Laws Practice says, for MNCs, the brand-owning entities outside India may directly engage ad agencies in India for media campaigns. In many such cases, GST authorities have alleged that the services provided by the ad agencies to the overseas brand-owner entities do not qualify as ‘exports’ since the target audience is in India or because the MNC’s local subsidiary in India interacts with the ad agency.

“The circular clarifies that such services shall qualify as export of service. This clarification reiterates what is already provided in the law and it should help resolve pending cases where such allegations are being raised by the GST department,” he said.

Published on September 12, 2024

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