Indian advertising companies/agencies have requested clarification on the tax treatment of services provided to foreign clients, as certain authorities have been treating the place of supply for such services as within India, thereby denying export benefits. This circular addresses these concerns and provides uniform guidelines.
Issue in Brief
Indian advertising companies provide comprehensive services to foreign clients, including media planning, content creation, media space procurement, and campaign monitoring. After purchasing media space from media owners, agencies invoice their foreign clients and receive payments in foreign currency. Clarifications are sought on whether these services are classified as intermediary services, how the recipient is determined, and if the services are performance-based under GST laws.
Clarifications
1. Advertising Agency as an Intermediary (section 2(13) of Igst Act):
Clarification: Advertising agencies are not intermediaries as they enter into separate contracts with foreign clients and media owners, acting on a principal-to-principal basis. The advertising services, including the procurement of media space, are provided directly to the foreign client. Therefore, the place of supply is determined by the location of the recipient (foreign client), not under intermediary provisions (Section 13(8)(b) of the IGST Act).
2. Recipient of Services (section 2(93) of Cgst Act):
Clarification: The foreign client, who pays the advertising agency, is the recipient of the services, not the target audience or any Indian representative. Even if a representative interacts with the agency, the foreign client remains the recipient under GST law.
3. Performance-based Services (section 13(3) of Igst Act):
Clarification: Advertising services do not involve the physical presence of goods or individuals in India. Therefore, they do not qualify as performance-based services under Section 13(3) of the IGST Act. The place of supply is determined by the location of the foreign client, as per Section 13(2), which can be considered as export of services subject to conditions.
Special Cases: Acting as an Intermediary
In cases where the advertising agency merely facilitates media space procurement between the foreign client and the media owner, without providing services on its own account, the agency is considered an intermediary. In such cases, the place of supply is linked to the location of the agency.
10x Comments
For most cases, the place of supply for advertising services provided to foreign clients is outside India, qualifying as export of services, unless the agency acts solely as a facilitator (intermediary). Agencies should review their contracts to ensure compliance with these clarifications.
For further guidance on GST compliance related to advertising services for foreign clients, contact 10X Consulting.
