GST Circular dated 10.09.2024-Advertising services provided to foreign clients!

CBIC has issued Circular No. 230/24/2024-GST on 10^th September 2024. This circular covers clarifications regarding advertising services being provided by Indian advertising companies/agencies to foreign entities, as some of the field formations are considering the place of supply of the said services as within India, thereby denying the export benefits to such advertising companies.

Let's understand the circular!

Key Clarifications in Circular No. 230/24/2024-GST dated 10.09.2024

A foreign company hires an Indian advertising agency for comprehensive services, including media planning, content creation, and procuring media space to display ads. The agency offers a one-stop solution, handling all aspects of the advertising process for the client.

In this scenario, media owners raise invoices to the advertising agency for inventory costs, which are then paid by the advertising agency. Subsequently, the advertising agency raises an invoice to the foreign client for the rendered advertising services and receives the payments in foreign exchange from the foreign client. In this regard, clarification has been sought as to the following issues:

1. Whether the advertising company be considered as an "intermediary" between the foreign client and the media owners as per section 2(13) of the IGST Act?

The agreement, in the instant case, is like two distinct principal-to-principal supplies and no agreement of supply of services exists between the Media company and the foreign client. The advertising company is not acting as an agent but has been contracted by the client to procure and provide certain services. The advertising agency is providing the services to the client on its own account.

Therefore, it is clarified that in the present scenario, the advertising company is involved in the main supply of advertising services, including the resale of media space, to the foreign client on the principal-to-principal basis as detailed above and does not fulfill the criteria of "intermediary" under section 2(13) of the IGST Act. Thus, the same cannot be considered as an "intermediary" in such a scenario and accordingly, the place of supply in the instant matter cannot be linked with the location of supplier of services in terms of section 13(8)(b) of the IGST Act.

2. Whether the representative of a foreign client in India or the target audience of the advertisement in India can be considered the "recipient" of the services being supplied by the advertising company under section 2(93) of the CGST Act?

As per Section 2(93)(a) of the CGST Act, the "recipient" of the services means the person who is liable to pay consideration where a consideration is payable for the supply of goods or services or both.

In the instant scenario, the foreign client is liable to pay the consideration to the advertising company for the supply of advertising and not the consumers or the target audience that watches the advertisement in India.

Therefore, it is 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, as per section 2(93) of the CGST Act, 2017.

3. Whether the advertising services provided by the advertising companies to foreign clients can be considered as performance-based services as per section 13(3) of the IGST Act?

The place of supply of performance-based services is provided in sub-section (3) of section 13 of the IGST Act. The provisions of clause (a) of the said sub-section pertain to the services supplied in respect of goods that are required to be made physically available by the recipient of services to the supplier of services.

However, in the instant matter, there does not appear to be any such involvement of goods that are required to be physically available with the supplier of advertising services. Therefore, the said provisions of clause (a) of the said sub-section cannot be made applicable for the determination of the place of supply of advertising services.

Also, in the present scenario, the supply of advertising services does not require the physical presence of the recipient (foreign client or representative or a person acting on his behalf) with the advertising company to avail of the said advertising services. Thus, the said supply of advertising services cannot be considered as being covered under section 13(3)(b) of the IGST Act for being considered as the services actually performed in India in terms of the said section.

Accordingly, it is clarified that the place of supply of advertising services in such cases can neither be determined as per the provision of section 13(3)(a) nor as per the provisions of section 13(3)(b) of the IGST Act.

The place of supply of the said advertising service being supplied by the advertising company to the foreign clients can only be determined as per the default provision, i.e. sub-section (2) of section 13 of IGST Act, i.e. the place of location of the recipient of the services.

Since the recipient of the advertising services in such a 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 as per Section 13(2) of IGST Act, and the said service can be considered to be export of services, subject to the fulfillment of conditions mentioned in section 2(6) of IGST Act.

However, it should be noted that in the cases where the advertising company located in India merely acts as an agent of the foreign client, the advertising company is an "intermediary" in accordance with Section 2(13) of the CGST Act, 2017, as elucidated in Circular No. 159/15/2021-GST dated 20.09.2021, in respect of the said services of facilitating the foreign client and accordingly, the place of supply in respect of the said services provided by the advertising company to the foreign client is determinable as per section 13(8)(b) of IGST Act, i.e. the location of the supplier, i.e. the location of the advertising company.

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Conclusion

GST Circular No. 230/24/2024 provides clear guidance on the treatment of advertising services provided by Indian agencies to foreign clients. It clarifies that such agencies are not intermediaries, and the place of supply is determined based on the recipient's location, which is outside India. Therefore, these services qualify as exports, allowing Indian advertising companies to avail the associated benefits. However, if the advertising company located in India merely acts as an agent of the foreign client, it will be considered an intermediary and will not qualify as an export. This clarification will help businesses ensure proper GST compliance while serving foreign clients and avoid unnecessary tax disputes.

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