CBIC has received various representations from the industry to provide clarification in the matter when the advertisement services are provided to foreign clients by Indian advertising companies/agencies. In some of the cases, the concerned jurisdictional officer considers that the place of supply of such service is within India. Therefore, the benefit of export is denied to such advertising companies. 

Considering the same, the CBIC has issued the clarification vide Circular No. 230/24/2024-GST  dated 11th September, 2023 clarifying the issue. Analysis of the clarification issued by the CBIC is as follows:

1. Issue under Consideration

• A foreign company or firm hires an advertising company or agency in India for the advertisement of its goods or services.

• For this purpose a comprehensive agreement is entered encompassing all the issues such as media planning, creating and designing content, strategizing for maximum customer reach, the identification of media owners, dealing with media owners, procuring media space, etc. for displaying/broadcasting/printing of advertisement including monitoring of the progress of the same. 

• The Indian advertising agency provides a one-stop solution to the client.

• In such cases, the media owners raise an invoice to the advertising agency for inventory costs.

• Subsequently, the advertising agency raises an invoice to the foreign client for the rendered advertising services and receives the payments in foreign exchange.

• In this scenario, the clarification has been sought from the CBIC that:

1. Whether the advertising company can be considered as an “intermediary” between the foreign client and the media owners in terms of section 2(13) of the IGST Act. Accordingly, the place of supply shall be determined as per 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 as the recipient of the services supplied by the advertising company under section 2(93) of the CGST Act? 
3. Whether the advertising services provided by the advertising companies to foreign clients be considered performance-based services as per section 13(3)of the IGST Act? 

2. Clarification

In this matter, the CBIC has issued the following clarification:

2.1 Issue 1 -Whether the advertising company is considered an “intermediary” as per section 2(13) of the IGST Act? 

• As per section 2(13) of the IGST Act, read with Circular no. 159/15/2021-GST dated 20.09.2021, a broker, agent, or any other person who arranges or facilitates the main supply of goods or services and has not involved himself in the main supply on his account is considered an intermediary. 

• In the given case, the foreign clients have entered into a comprehensive agreement with Indian advertising companies and have outsourced the entire activity of advertising services to the Indian Company.

• Further, The Indian advertising companies enter into an agreement with the media owners in India for implementing the said media plan and procurement of media space for airing releasing, or printing advertisements. 

• Therefore, The Indian advertising agency enters into the following two agreements:
  • The foreign client provides a one-stop solution starting from designing the advertisement to its display in the media. The advertising company raises an invoice to its foreign client for the above advertising services and the consideration is received in foreign exchange. 
  • The media company procures media space for the display of the advertisement and monitors campaign progress based on data shared by the media company. The media company raised the invoice to the Indian advertising agency.

• Therefore, two distinct agreements are entered into in this case on a principal-to-principal basis 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 is providing the services to the client on its account.

• Therefore, the CBIC has clarified that the advertising company is involved in the main supply of advertising services, including the resale of media space, to the foreign client on a principal-to-principal basis and does not fulfill the criteria of “intermediary” under section 2(13) of the IGST Act. 

• Thus, the place of supply cannot be linked with the location of the supplier of services in terms of section 13(8)(b) of the IGST Act. 

2.2 Issue-2 Whether the representative of a foreign client in India or the target audience of the advertisement in India can be considered as the “recipient” of the services 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 for the supply of goods or services.

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

• Further, even if a representative of the said foreign client is based in India, including a subsidiary or any other person, is interacting with the advertising company on behalf of the said foreign client, such representative cannot be considered a recipient of the service if the agreement is entered into between the foreign client and the advertising company. 

• Invoice for such supply of service is raised by the Indian Advertising company to the foreign client and the payment is received directly from the said foreign client. 

• The target audience of the advertisements may be based in India but such a target audience cannot be considered as recipient of the service as per the definition of the recipient given under section 2(93) of the CGST Act. 

• Accordingly, CBIC has clarified that the recipient of the advertising services is the foreign client and not the Indian representative or the target audience of the advertisements.

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

• The place of supply of performance-based services is provided in section 13(3) of the IGST Act.

• As per Section 13(3) of the IGST Act, the following shall be the place of supply of service:
  • Clause (a)-  Service provided in respect of goods that are required to be made physically available by the recipient of services to the supplier of services. However, the given case does not involve any goods that are required to be made physically available to the advertising Company. Therefore, clause (a) shall not apply.

• Clause (b): The place of supply shall be the location where the services are performed in case, where,
  • services are supplied to an individual,
  • Represented either as the recipient of services or a person acting on behalf of the recipient, and 
  • which requires the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of service

In the present scenario, the supply of advertising services does not require the physical presence of the foreign client or his representative. Therefore, clause (b) of section 13(3) shall not apply in the given case.

• Therefore, the place of supply of advertising services can’t be determined under either of the clauses of Section 13(3) of the IGST Act. 

2.4 Applicability of residuary provisions of Section 13 of IGST Act to determine the place of supply

• CBIC ha clarified place of supply of the discussed advertising services is not covered under any other provisions of sub-sections (3) to (13) of Section 13 of the IGST Act. 

• Therefore, the place of supply of advertising services can only be determined as per the default provision, i.e., section 13(2) of the IGST Act, i.e. the place of location of the recipient of the services. 

• Since the recipient of the advertising services is a foreign client, who is located outside India, the place of supply of such services shall be outside India as per Section 13(2) of the IGST Act and the supply of such service shall be considered as export of services, subject to the fulfillment of other conditions.

2.5 Where Indian advertising company acts as an Agent

However, there can be a scenario Where:

• The contract of providing the media space and broadcast of the advertisement is directly entered between the media owner and the foreign client. The Indian advertising company is acting as an agent of the foreign client.
• The media owner raises the invoice directly to the foreign client and the foreign client remits the payment directly to the media owner. 

In such instances, the services of providing media space and broadcasting the advertisement are directly provided by the media owner to the foreign client, and the advertising company is merely acting as a facilitator and does not provide the services on its account. 

Consequently, in such cases, the advertising company is an “intermediary” by Section 2(13) of the CGST Act, 2017. The place of supply of services provided by the advertising company to the foreign client is determinable as per section 13(8)(b)of the IGST Act, i.e. the location of the supplier, i.e. the location of the advertising company. 

3. Conclusion

CBIC has clarified that the place of supply of advertisement service provided by the Indian Advertisement company to the foreign client shall be the location of the recipient of service, in terms of Section 13(2) of IGST Act provided that such service is provided on principal to principal basis and the Indian advertisement agency is not acting as an intermediary.