OIDAR - Taxability under GST

[Naviin Guptaa]

Dear All,

U/s 13(12) of IGST Act, Place of supply of online information and database access or retrieval services shall be the location of the recipient of services.

My query is whether RCM on advertisement fee charged is required to be paid as per section 13(12) of IGST Act. in case of a person (from India) supplying good to Amazon.com (USA) were they are charging advertisement fee which are mainly used for USA based customer, and remitting payment of sale proceed after deducting their commission, advertisement fee etc.

[Shilpi Jain]

To me this advertisement fee does not seem to be an OIDAR service.

Also the terms and conditions in this regard need to be seen to check the taxability, if any ofnthe advertisement fee.

[Naviin Guptaa]

Thank you Shilpi Ji for your response. I missed to add reference to Section 2(17) of IGST Act which talks about defination of OIDAR covers 'Advertisement on Internet'. So I have raised this concern.

Could you help me in this context?

[KASTURI SETHI]

In my view, RCM is applicable for the services (advertisement etc.) received in India.

[Naviin Guptaa]

Thank you so much sir!!

But query is even though intended audiance is in USA (Amazon.com), does we should not considered place of supply as outside India? Although 13(12) specifically mentioned that place of supply should be location of recipient of services (An Indian entity).

[KASTURI SETHI]

Sh.Naviin Guptaa Ji,

Pl. clarify the following points :-

1. As per your query, Amazon.Com has made the payment of sale proceeds of goods after deducting commission, advertisement fee etc. It means you have made the payment to the person located outside India. Do you agree ?

[Naviin Guptaa]

Yes Sir, agreed.

[KASTURI SETHI]

When we make payment to someone either we buy the goods or receive the service from that person. So you have received service from a foreign person. In other words, from non-taxable territory to taxable territory (India). Do you agree ?

[Naviin Guptaa]

Agree Sir. So in our case even though targeted customer of the advertisement services is outside India, still we will have to consider it under RCM as person making the payment/adjustments in taxable territory?

[KASTURI SETHI]

Section 2(16) of IGST Act

(16) “non-taxable online recipient” means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.

Does the person from India conform to the above parameters ? Is he covered in the above definition ?

Pl. reply.

[Naviin Guptaa]

No, sir. Person payment the advertisement fee is a register person.

[Shilpi Jain]

To me it looks like the advertisement fee is a deduction from consideration payable to you. In case the contract with the USA entity is that Amazon is required to do advertisement for the Indian entity's products then it could be a service provided to you and liability will exist under RCM.

[Shilpi Jain]

All the right questions posed by Kasturi sir to guide you to the conclusion.

Place of supply provisions have to be followed as applicable and we cannot get into the logics of the fact that the actual beneficiary is outside India so how is it taxable here?

[Shilpi Jain]

Also since in this case you are a registered person and the services are used in business, RCM cannot be avoided if it is advertisement services provided by Amazon to you over the internet.

AI Summary

Place of supply rules: RCM may apply where online advertisement services are supplied to a registered Indian recipient used in business.
Place of supply under section 13(12) treats OIDAR as supplied to the location of the recipient. If a registered Indian recipient receives internet advertising services from a foreign entity and uses them for business, contract terms and whether the fee is treated as a separate service charge or deduction determine whether the receipt is taxable in India and attracts the reverse charge mechanism. A registered business recipient will generally not qualify as a non-taxable online recipient, so RCM may apply despite the advertisement's target audience being outside India.