GST implications on Advertising Services

In this edition, we discuss the GST implications on advertising services provided by Indian advertising agencies to foreign clients as per recent "Clarification in respect of advertising services provided to foreign clients–reg" issued by CBIC GST Policy Wing dated 10th September, 2024, Circular No. 230/24/2024-GST.

Scenario Overview: A foreign company hires an Indian advertising agency for comprehensive services, including media planning, content creation, and campaign execution, offering a one-stop solution for advertising its products or services in India. To execute these services, the Indian advertising agency partners with media companies to procure ad space and monitor campaigns, making payments directly to the media companies.

In such case generally, media companies first invoice the advertising agency for the cost of inventory, after which the agency invoices the foreign client for the full range of advertising services, receiving payment in foreign exchange.

Issue 1: Can the Indian advertising agency be classified as an "intermediary" under Section 2(13) of the IGST Act?

In this scenario, the Indian advertising agency engages in two distinct principal-to-principal transactions:

1. It purchases media space from the media company.
2. It provides advertising services to the foreign client.

In this case, the Indian advertising agency acts on its own account and is the primary service provider. Therefore, it does not meet the definition of an "intermediary" under Section 2(13) of the IGST Act. Consequently, the place of supply cannot be determined based on the supplier's location as per Section 13(8)(b).

Issue 2: Can the Indian representative of the foreign client or the target audience in India be considered the "recipient" of services under Section 2(93) of the CGST Act?

As per Section 2(93)(a) of the CGST Act, the "recipient" is the person liable to pay consideration for the services rendered. In this case:

• The foreign company is responsible for paying for the advertising services, not the Indian consumers or target audience.
• The Indian representative, such as a subsidiary or local office of the foreign company, acts on behalf of the foreign client, but the agreement, invoicing, and payment are between the foreign client and the Indian advertising agency. Hence, the Indian representative is not the recipient.
• The target audience in India is also not considered the recipient under Section 2(93) of the CGST Act.

Thus, the foreign client is the recipient of the advertising services, not the Indian representative or target audience.

Issue 3: Are the advertising services provided to foreign clients considered "performance-based services" under Section 13(3) of the IGST Act?

Section 13(3) of the IGST Act addresses the place of supply for performance-based services. However, clause (a) applies only when the service involves physical goods provided by the recipient to the supplier, which is not the case for advertising services.

Clause (b) applies to services supplied to individuals that require the recipient's physical presence, which also does not apply here since the foreign client is not physically present in India for these services.

Therefore, Section 13(3)(a) and (b) are not applicable. The place of supply must be determined under Section 13(2), which designates the location of the service recipient as the place of supply—here, the foreign client outside India. As such, the service qualifies as an export of services, subject to the conditions outlined in Section 2(6) of the IGST Act.

Issue 4: Under what scenario can the Indian advertising agency be considered an "intermediary"?

An Indian advertising agency may be considered an intermediary in a situation where:

1. The media company provides services directly to the foreign client, and
2. The advertising agency invoices the foreign client for facilitation services.

In this case, the Indian advertising agency acts as an agent, facilitating the provision of media space and broadcasting services between the foreign client and the media company. As a result, the agency is classified as an "intermediary" under Section 2(13) of the IGST Act, and the place of supply is determined based on the location of the intermediary, which is India, as per Section 13(8)(b).

Disclaimer: This content is intended solely for academic and knowledge-sharing purposes. It does not constitute legal or professional advice. For specific guidance and detailed clarification, please refer to the relevant provisions of the law and the circulars or notifications issued by the concerned authorities. Always consult the captioned circular or appropriate legal professionals for a comprehensive understanding