The Government of West Bengal on October 4th 2024 issued clarifications in respect of advertising services provided to foreign clients.
This clarification is especially relevant for businesses navigating the complexities of the Goods and Services Tax (GST) framework.
Context and Background
As the advertising landscape evolves, Indian agencies increasingly collaborate with foreign entities for advertising services. However, there has been confusion surrounding the classification of these services, particularly concerning the place of supply and eligibility for export benefits. This circular seeks to address these concerns, ensuring consistency in the implementation of GST provisions across various field formations.
Key Issues Addressed
1. Intermediary Status of Advertising Agencies
A primary concern raised by the trade was whether advertising agencies could be classified as intermediaries. Under the Integrated Goods and Services Tax Act, 2017 (IGST Act), an intermediary is defined as a broker, agent, or any individual who facilitates the supply of goods or services without being involved in the main supply.
Clarification:
The circular clarifies that Indian advertising agencies are not intermediaries. They engage directly with foreign clients under comprehensive agreements, providing a range of advertising services. This includes media planning, content creation, and purchasing media space, all on a principal-to-principal basis. Thus, they do not simply facilitate transactions between foreign clients and media owners; they are actively involved in delivering the services.
2. Defining the Recipient of Services
Another critical issue pertains to who qualifies as the recipient of the advertising services. According to the West Bengal Goods and Services Tax Act, 2017 (WBGST Act), the “recipient” is defined as the person liable to pay for the services.
Clarification:
In this context, the foreign client is recognized as the recipient of the advertising services, not any Indian representatives or the target audience within India. Even if an Indian subsidiary or representative of the foreign client interacts with the advertising agency, it does not alter the fact that the foreign client is the one liable for payment.
3. Performance-Based Services
The circular also addresses whether the advertising services can be considered performance-based under the IGST Act. Performance-based services are those that necessitate the physical presence of the recipient or their representative with the supplier.
Clarification:
The services provided by advertising agencies do not require such physical presence. Therefore, they cannot be categorized under performance-based services for the purpose of determining the place of supply. Instead, the place of supply should be determined based on the location of the recipient—the foreign client—meaning these services can be classified as exports.
Implications for Businesses
Place of Supply Determination
The determination of the place of supply is crucial for GST compliance. According to the circular, since the foreign client is located outside India, the place of supply for advertising services rendered is also deemed to be outside India. This allows these services to qualify as exports, subject to meeting the conditions outlined in the IGST Act.
Facilitation Role of Advertising Agencies
The circular also addresses scenarios where an advertising agency might act merely as an intermediary.
- Intermediary Status: If the agency only facilitates the engagement between the foreign client and media owners, then it does not provide the services on its own account. In such cases, the media owner directly invoices the foreign client.
- Place of Supply for Facilitation Services: Here, the advertising agency qualifies as an intermediary, and the place of supply would be determined by the location of the agency as per Section 13(8)(b) of the IGST Act.
Difficulty, if any, in the implementation of this Trade Circular may be brought to the notice of the Commissioner.
