CBIC issued Clarification on Advertising Services provided to Foreign Clients

The Central Board of Indirect Taxes and Customs (CBIC) has clarified many taxation concerns relating to advertising services given to foreign clients by Indian advertising businesses. This is based on the GST Council’s recommendation, which was agreed upon during the September 9 meeting.

The first issue addresses whether the advertising company may be regarded as an “intermediary” between the foreign client and the media owner. The CBIC stated that the advertising company does not meet the definition of ‘intermediary’ because it is involved in the primary supply of advertising services, including the resale of media space, to the foreign client on a principal-to-principal basis.

The second issue is whether the foreign clients’s representative in India or the advertisement’s target audience in India may be deemed the “recipient” of the services provided by the advertising company. The circular clarified that in such cases, the foreign customer receives the advertising services offered by the advertising company, not the Indian agent of the foreign client based in India or the target audience of the advertisements.

The third issue relates to whether advertising services given by advertising companies to foreign clients qualify as performance-based services under the IGST rules. For this, the circular responds negatively. “Furthermore, because the recipient of the advertising services in such a scenario is a foreign client located outside India, the place of supply of the said services appears to be the said foreign client’s location, i.e. outside India, and the said service can be considered an export of services,” according to the circular.

“CBIC’s Clarifications on essential factors like Indian advertising agencies not being intermediaries while dealing with foreign clients on a P2P basis, advertising services are not performance-based services and foreign clients paying in foreign currency being the actual recipients, have all led the way for these kinds of services to qualify as exports and not obligated to GST in India,” according to a tax professional.

The government not only provides relief to the advertising company, but it also establishes an example for other industries that have similar challenges, such as real estate and vouchers, giving them hope for future clarity on their tax treatment. The change is a step in the right direction for improving compliance and decreasing litigation in industries with tax uncertainty.

For MNCs, brand-owning organizations outside India can directly employ ad agencies in India for media campaigns. In many such cases, GST authorities have claimed that the services given by ad agencies to overseas brand-owner companies do not qualify as ‘exports’ because the intended audience is in India or the MNC’s local subsidiary in India communicates with the ad agency.

The circular clarifies that such services are acceptable as export of services. This clarification emphasizes what is already in the law and should aid in the resolution of pending cases in which the GST department has brought similar allegations.

For Official Circular Download PDF Given Below: