Circular No. 230/24/2024-GST: A sigh of relief for Advertisement Industry

Summary: CBIC issued Circular No. 230/24/2024-GST on September 10, 2024 to address ambiguities related to the GST treatment of cross-border advertising services, particularly under the P2P (Principal-to-Principal) and P2A (Principal-to-Agent) models. Previously, GST on domestic advertising transactions was clarified in 2017, with different rates for agencies selling advertising space in print media and those acting on commission. However, uncertainties persisted regarding cross-border services, as GST authorities often denied export benefits by treating India as the place of supply. Circular No. 230 clarifies that in P2P arrangements, where the agency provides comprehensive services, the place of supply is the foreign client’s location, qualifying the services for export benefits. In contrast, for P2A arrangements, where the agency acts as a facilitator, the place of supply is India, and such services are subject to IGST. Additionally, CBIC confirmed that the target audience in India is not considered the recipient under GST law, resolving disputes where authorities had denied export benefits by misidentifying the audience as the recipient. This clarification provides much-needed guidance for the advertising industry, particularly in cross-border transactions.

Previous clarification related to GST on advertising industry

Vide Press release dated 23rd August 2017, issued by Press Information Bureau Government of India, Ministry of Finance, Government has clarified GST on selling of space for advertisement in print media. Said press release clarified that the selling of space for advertisement in print media is leviable to GST @ 5% on the full amount charged (after adjusting discount, if any) by the advertisement agency from the client. However, if the advertisement agency sells space for advertisement as an agent of the newspaper on commission basis, it would be liable to pay GST@ 18% on the sale commission it receives from the Newspaper.

Need for CBIC Circular No. 230/24/2024-GST on September 10, 2024:

Above clarification settled the GST treatment for services provided by Indian advertising agencies to Indian advertisers. However, ambiguity remained for cross-border advertising transactions, where GST authorities often denied the benefit of export services by treating the place of supply as India. If the place of supply is determined to be within India, advertising agencies are not eligible for export benefits; otherwise, such benefits are available.  To resolve these issues, the CBIC/Board issued Circular No. 230/24/2024-GST on September 10, 2024​, which is subject matter of the present discussion.

How the Advertising Industry operates:

Overall advertising industry operates in a complex ecosystem. Broadly there are 2 (two) arrangements prevalent in the advertisement industry viz P2P and P2A.

P2P: In the advertising industry, one common arrangement is the Principal-to-Principal (P2P) basis, where the advertising agency offers a comprehensive, end-to-end solution to its clients. Under this arrangement, the agency assumes full responsibility for all aspects of the advertising campaign. This includes:

• Media Planning: Determining the most suitable media channels (e.g., TV, print, digital) to achieve the client’s marketing objectives.
• Investment Planning: Allocating the advertising budget across various media outlets to maximize the return on investment.
• Content Creation: Developing the creative content for the advertisement, such as designing visuals, crafting messages, and producing media assets.
• Strategy Development: Formulating strategies to ensure maximum customer reach, targeting the right audience at the right time.
• Media Owner Identification and Dealings: Identifying suitable media owners (e.g., newspapers, TV channels, online platforms) and negotiating terms for procuring media space.
• Procurement of Media Space: Purchasing media space for displaying, broadcasting, or printing the advertisement.
• Monitoring and Reporting: Monitoring the campaign’s progress and effectiveness, providing performance data and insights to the client.

Typically flow of services and raising of invoice in such arrangement can be explained as under:

Aspect related to GST on P2P arrangements

Following aspect of P2P arrangements are worth discussing to analyse GST impact on P2P arrangements

1. Procurement and Payments:

• The advertising agency makes payments to media owners directly for the media space procured. Since the agency is acting as the principal in this transaction, it bears the financial responsibility and risk associated with purchasing the media space.

2. Raising of Invoice on foreign clients:

• After the campaign is executed, the advertising agency raises an invoice on the foreign client for the entire range of services provided.

3. Payment:

• The foreign client makes the payment directly to the advertising agency in foreign currency. It is highlighted that 2 (two) separate contracts exists in P2P arrangement, as explained hereunder:
• Contract between foreign clients with advertising agency in India to outsource the entire activity of advertising services
• Contract between Indian advertising agency and media owners in India to procure media space for displaying, broadcasting, or printing the advertisement on behalf of the foreign client.

P2A: In P2A arrangement advertising agency do not provides one-stop solution to the client.

Facts distinguishing P2A from P2P

Following facts distinguish P2A from P2P.

1. Role of the Advertising Agency:

Advertising Agency does not undertake the full range of advertising services, such as media planning, content creation, or campaign management. It merely acts as an agent of the foreign client in engaging with the media owner for providing media space to the foreign client.

2. Contractual Relationships:

In such cases, the agreement/ contract for providing the media space and broadcast of the advertisement is directly between media owner and the foreign client.

3. Flow of Service and Invoicing:

The media owner invoices the foreign client directly for the media space and broadcasting services, with the client remitting payment directly to the media owner. Advertising agency raises an invoice to the foreign client solely for its facilitation services (i.e., agency or commission fee) and not for the media space.

Typically flow of service in P2A model can be explained as under:

Analysis of Clarifications from CBIC 

Having delved into the complexities and specific dynamics of the advertising industry, it is now pertinent to examine the recent CBIC clarification.

#1: Clarification on whether Advertisement services fall under performance-based services for determination of place of supply.

The determination of whether advertising services fall under the category of “performance-based services” is crucial for establishing the place of supply under the Integrated Goods and Services Tax (IGST) Act. If advertising services are classified as performance-based service, then the place of supply would be determined under Section 13(3) of the IGST Act.

Making reference to Section 13(3)(a) and (b) of the IGST Act, Board aptly concluded that place of supply of advertising services can neither be determined as per the provision of section 13(3)(a) nor as per the provisions of section 13(3)(b) of IGST Act.

#2: Clarification on the Place of Supply in P2P and P2A arrangements Between Indian Advertising Agencies and Foreign Clients:

Board clarified that in P2P arrangement, default Rule applies i.e. in terms of Section 13(2) of the IGST Act, place of supply will be location of recipient ie foreign country and therefore subject to fulfillment of other conditions of export of services, such arrangement shall be classified as “Export of Services”.

The Board further clarified that in a P2A arrangement, the advertising agency serves as a facilitator for the foreign client and is therefore regarded as an intermediary for GST purposes. According to Section 13(8)(b) of the IGST Act, the place of supply for such intermediary services is the location of the supplier, which in this case is the location of the advertising agency ie India. Consequently, IGST is applicable to these services, and services do not qualify for the benefits of export of services.

#3: Clarification on whether the Target Audience in India can be considered the Recipient of Services:

The question of whether the Target Audience in India can be considered the recipient of advertising services is crucial. If the target audience is treated as the recipient, the benefit of export of services could be denied since one of the conditions for export under GST is that the recipient must be located outside India.

Referring to the definition of “recipient” in Section 2(93) of the IGST Act, the Board hyped on the legal position that the recipient is the person liable to pay the consideration for the supply, where consideration is payable. Therefore, the foreign client is regarded as the recipient, while the target audience in India does not meet the definition of “recipient” under Section 2(93).

Our comments:

With this clarification, the CBIC has provided much-needed clarity on the place of supply for advertising services rendered to foreign clients. This move offers significant relief to the advertising industry, which had previously faced litigation to validate their claims for export of services under GST. Additionally, the distinction made between the target audience and the recipient of services is particularly advantageous for the media industry. It effectively addresses and resolves cases where tax authorities had incorrectly identified the Indian audience as the recipient, thereby denying export benefits.