Advertising Companies not to be classified as "Intermediaries" between Foreign Clients and Media under IGST Act, CBIC clarifies [Read Circular]
Consequently, the place of supply for these services should not be determined under Section 13(8)(b) of the IGST Act, which pertains to intermediaries
Advertising Companies – classified – Intermediaries – Foreign Clients – Media – IGST Act – CBIC – taxscan
Advertising Companies – classified – Intermediaries – Foreign Clients – Media – IGST Act – CBIC – taxscan
The Central Board of Indirect Taxes and Customs (CBIC) has issued a significant clarification regarding the classification of advertising companies under the Integrated Goods and Services Tax (IGST) Act. According to the latest circular issued after the 54th GST Council meeting, the advertising companies will not be classified as "intermediaries" between foreign clients and media owners.
Under Section 2(13) of the IGST Act, read with Circular No. 159/15/2021-GST dated 20.09.2021, an "intermediary" is defined as a broker, agent, or any other person who arranges or facilitates the main supply of goods or services but does not engage in the supply on their own account.
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In the clarified scenario, foreign clients enter into comprehensive agreements with advertising companies or agencies based in India. These agreements encompass the entire spectrum of advertising services, from designing advertisements to their display in various media. The advertising companies, in turn, enter into separate agreements with media owners in India to implement the media plans and secure space for the advertisements.
The process involves two distinct principal-to-principal agreements:
Agreement with the Foreign Client: The advertising company provides a complete suite of advertising services, including the design and placement of advertisements. The company invoices the foreign client directly for these services, receiving payment in foreign exchange.
Agreement with the Media Company: The advertising agency procures media space and manages the advertising campaign based on data from the media company. The media company bills the advertising agency, which then makes the payment to the media company.
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This arrangement clearly delineates the advertising agency’s role as a principal service provider rather than an intermediary. The agency is involved directly in the provision of services to the foreign client, including the resale of media space, and is not merely facilitating the supply between the client and media owners.
The CBIC’s clarification means that advertising companies, in this scenario, are engaged in the main supply of services on a principal-to-principal basis and do not meet the criteria of an “intermediary” as defined under Section 2(13) of the IGST Act. Consequently, the place of supply for these services should not be determined under Section 13(8)(b) of the IGST Act, which pertains to intermediaries.
To Read the full text of the Circular CLICK HERE
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