These days it has become a trend of being social and maintaining one’s identity on the digital platform. One of the social media example is Youtube, which in the present scenario giving lot of opportunities to the people all around the world to not only explore but also showcase talents, knowledge, experience, capabilities in order to assist the others if any information is required. A research revealed that in 2020, YouTube has paid Rs 6,800 Crores to YouTube Creators in India as part of their YouTube Partner Program (for brevity ‘YPP’). That roughly translates to 6.84 lakh full time jobs.
YouTube pays the content creators in different ways. The significant portion among all the pay-outs by YouTube is the advertisement revenue. Once the content creator meets the threshold set by YouTube (i.e minimum 4000 public watch hours in the previous 12 months and atleast 1000 subscribers), he will be in a position to monetise his videos. YouTube pays roughly 55% of the advertisement revenue to the content creators and retain the balance.
In this part, we will be dealing with the tax implications on the share of advertisement revenue that is paid out by YouTube to content creators. Let us understand the tax implications by taking a case study.
Mr Ayush, an individual, is a YouTube content creator located in India. He updates original content every week and has a huge subscriber base. He has qualified for the benefits under YPP and he was being paid by YouTube on a monthly basis, share of advertisement revenue, let us say, Rs 2 lakhs.
The operation model (modus operandi) is given below in simplified manner-
1. Mr Ayush creates a video.
2. Uploads into his channel.
3. Selects that the video is open for monetisation.
4. YouTube based on its ads algorithm plays advertisements in the video posted by Mr Ayush.
5. YouTube collects money from advertisers as per their agreement.
6. YouTube pays Mr Ayush, a part of such advertisement revenue.
The question that arises for consideration is, what are the implications on the income earned by Mr Ayush from the perspective of GST laws. Let us proceed to analyse the same.
In order to understand the tax implications, it is a pre-requisite to understand, as to, what is the nature of supply, who is the supplier, who is the recipient, what is the location of supplier, what is location of recipient and finally, where is the place of supply.
Determination of Nature of Services provided by YouTube to Content Creators:
As discussed earlier, Mr Ayush uploads the content he made for the view of general public who uses the YouTube. If he meets the threshold set by YouTube, he will be eligible for monetisation and YouTube shares the advertisement revenue. At this juncture, it is important to understand, the nature of service provided by YouTube.
The core functionality of YouTube is it allow users to share the videos. It is an online video sharing platform. Hence, Mr Ayush was provided with a platform, which allows him to upload the videos, so that subscribers can watch the content.
1. YouTube is the provider of service, that is allowing access to Mr Ayush to upload his videos.
2. Mr Ayush is the recipient of said service.
As discussed earlier, Mr Ayush is located in India and YouTube is located outside India. Therefore, we have identified the supplier, the recipient and locations thereof. Now, we have to examine, what is the nature of service provided by YouTube to determine the place of supply.
The determination of place of supply of a service is crucial in arriving the taxability.
If the location of recipient of supply is outside India, the location of supplier is in India and the place of supply is outside India, then there is no taxability under the IGST Act2, because it qualifies as zero rated supply in terms of Section 16 of IGST Act.
On the other hand, if the location of supplier of service is outside India, the location of recipient is in India and the place of supply is within India, then there is a tax liability in the hands of the recipient of supply, famously called as tax under reverse charge mechanism (for brevity ‘RCM’).
Hence, the determination of place of supply is very crucial and has a direct impact on the determination of tax of such supply.
The general rule under Section 13 is, the place of supply of services is the location of recipient of services. However, this general rule comes into trigger only, when the services do not fall under sub-clauses (3) to (13) of Section 13. Hence, if we rule out that, the services provided by YouTube does not fall under any sub-clauses of (3) to (13) of Section 13, then the location of recipient of services, that is Mr Ayush, will be the place of supply. Hence, let us proceed to examine, under which sub-clauses of Section 13, the services provided by YouTube would fit in.
A survey of the sub-clause (3) to (13) of Section 13 would indicate that, Section 13(12), is the one relevant in the current context. Section 13(12) deals with place of supply of online information and database access or retrieval services (for brevity ‘OIDAR’) and states that the place of supply is the location of recipient of services. Hence, the services provided by YouTube falls under the ambit of OIDAR and place of supply shall be location of recipient, that is Mr Ayush, in our case study.
The following can be concluded-
1. The supplier of service is located outside India,
2. The recipient of supply is located in India and
3. Place of supply is India,
Conclusion: The recipient is obliged to pay tax under RCM. However, since YouTube does not charge any consideration for access of its platform to the content creator i.e Mr Ayush in our case, there would not be any tax implications in the hands of Mr. Ayush.
Determination of Nature of Services Involved in Sharing of Advertisement Revenue:
As discussed earlier, Mr Ayush on meeting the threshold set by YouTube, will be eligible for YPP. Under YPP, Mr Ayush will be eligible to monetise the video and thereby getting eligible for the share of advertisement revenue earned by YouTube. Mr Ayush has to turn on the monetise option for each of his video to be eligible for the share of advertisement revenue. In such a case,
1. Mr Ayush can be said to be the service provider, since, he is allowing YouTube to run advertisements in his content.
2. Consequently, YouTube would be the service receiver.
We know the locations of the service provider and service receiver. What needs to be determined is the place of supply and that is dependent upon the nature of supply provided by Mr Ayush to YouTube.
The drill is same for this scenario also, since one of them is outside India and we need to fall back on Section 13. So, let us find out under what sub-clauses of (3) to (13) of Section 13, the services provided by Mr Ayush would fit into. One can argue that the services provided by Mr Ayush would also be called as OIDAR. But on a close reading, it would appear that OIDAR necessities a supply from the provider to recipient with the help of telecommunication or internet. However, in case of Mr Ayush, the video is already within the control of YouTube and by click of the button (turning the ads on for monetisation) which is at the disposal of Mr Ayush, YouTube can place the ads in his content. In other words, Mr Ayush need not do anything more for allowing YouTube to place the ads on his video except giving a consent. Hence, the said service may not be falling under OIDAR. That leaves us to the general rule, that is the place of supply shall be the location of service recipient. Even, if someone takes an argument that services provided by Mr Ayush are also in the nature of OIDAR, then also, the place of supply shall be the location of recipient. In any case, the place of supply shall be the location of recipient that is YouTube.
The following can be concluded-
1. The recipient, YouTube is outside India,
2. The supplier, Mr. Ayush is in India and
3. The place of supply is outside India.
The supply checks out majority of the conditions mentioned for ‘export of service’ as laid vide Section 2(6) of IGST Act. If Mr Ayush receives the advertisement revenue in the form of convertible foreign exchange, it can be safely concluded that the services provided by Mr Ayush are ‘export of services’ and thus zero rated supplies as per Section 16 of IGST Act.
Section- 16(3) of IGST Act allows refund of input tax credit that has been accumulated by the service provider who gets engaged in provision of zero rated supplies. Hence, Mr Ayush can apply for refund of taxes paid by him on his purchases of inputs and input services that are used for provision of export of services, subject to certain conditions and limitations like ITC on camera and other shooting materials.
1. The said services qualify as export of services,
2. There is no requirement for Mr Ayush to pay any tax on the amounts received.
3. However, he is mandated to obtain a registration in light of provisions of Section- 24 of CGST Act, irrespective of his quantum of receipts. In other words, even income of Mr Ayush in our case study has not crossed Rs 20 lakhs, he would be liable to obtain registration and disclose the receipts under zero rated supplies in the periodical returns.
Other Incidental Aspects:
Services provided by YouTube to Taxable Persons:
The advertisement revenue that is shared by YouTube to the content creator is derived from the separate contracts that YouTube enters into with different persons. Let us say, a company located in India intends to advertise their products with the help of YouTube. They enter a contract with YouTube and accordingly leave it to the ads algorithm. In such cases, the company is undoubtedly the service receiver, YouTube is the service provider. The nature of supply shall be OIDAR, because, it covers advertising on the internet. In such cases, the place of supply shall be the location of service recipient, that is India. Since, the place of supply is India, the recipient is located in India and provider is located outside India, the tax is required to be paid by Indian company under RCM.
Services provided by YouTube to Non-Taxable Persons:
YouTube has rolled out premium subscriptions recently. Under premium subscription, an individual can make a payment to YouTube and avoid see advertisements in the content he wishes to watch. Ideally, the individual would be obliged to pay tax under RCM, since all the conditions for import of service gets satisfied. However, in order to relieve the individual from obtaining registration and complying with tax, Section-14 of IGST Act stipulates that YouTube is obliged to make payment of tax for all such services provided to individuals.
Disclaimer: The above discussion is purely based on the views of the author.