Zero-rating

OSH successfully defends zero-rating of supply of marketing services

After a review of a legal opinion provided by OSH, the Comptroller of GST has agreed that certain marketing services provided by a service provider to an overseas manufacturer for the purposes of generating increased sales only directly benefits the manufacturer and thus may be zero-rated. The marketing services included the monitoring of sales and inventory, collection and sharing of market information and carrying out checks at stores to ensure prominent display of products. Such services necessarily required the service provider to interact with the resellers.

The Comptroller had adopted an approach and perspective that was consistent with its E-Tax Guide, and considered the services as also directly benefitting resellers in Singapore – there would be a potential increase in sales for the resellers attributable to the promotion of the products. As such, he sought to impose GST on the supply of the services at the standard rate of 7%.

OSH undertook a rigorous analysis of the law and took the view that the primary issue under the relevant provision was whether the overseas manufacturer, as the intended beneficiary of the services, directly benefitted from the supply of services. Consideration of whether someone else in Singapore benefitted from the supply of services is only relevant in so far as it may be said that the benefits derived by the person in Singapore were of such extent and/or nature that the overseas person no longer be said to be directly benefitting from the services.

On the facts, in particular, how the services were provided, it was clear that the overseas manufacturer did directly benefit from the supply of services. Having considered how the services were provided, a closer look at the perceived benefits derived by the resellers, in the proper context and from the correct perspective, i.e. that of the resellers, showed that, contrary to the Comptroller’s view, they were not benefits per se. Given that the resellers were not exclusive retailers of the overseas manufacturer’s products, and further, that the promotional requirements, which were part of the resellers’ obligations under the respective distribution agreements,  effectively placed limitations on the resellers in the running of their businesses, it could not simply be presumed that the resellers derived a direct benefit from the supply of services. On this basis, it could not be said that the overseas manufacturer did not directly benefit from the supply of services. The services were thus international services, the supply of which were subject to GST at 0%.

For more information, please contact Joanne Khoo at jk@ongsimho.com or +65 6804 7568.

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