Background
The taxpayer, Redberry Ambient Sdn Bhd (RASB), was engaged in the business of renting advertising space from vendors to place the advertisements of its customers. RASB charged its customers 6% service tax to place advertisements on digital and cinema advertising space rented from its vendors. RASB entered into an agreement with TGV Cinemas Sdn Bhd (TGV) for the letting of advertising space at TGV’s multiplexes. The revenue share between RASB and TGV provided under the agreement was declared by RASB as consideration paid to TGV for the rental of the advertising space. The rental payment consisted of a fixed rental fee and a performance rental fee to be paid depending on the media sales generated.
In May 2020, RASB requested for a confirmation from the Royal Malaysian Customs Department that the arrangement of payment for the advertising space from TGV was not subject to service tax.
The Director General of Customs (DGC) responded and stated that the service tax treatment of digital advertising space and airtime was different from non-digital advertising space as the media owner, TGV, still had control over the advertising space where the advertisements were aired by the media owner. Therefore, the payment, whether termed as fixed rental fee or performance rental fee, was subject to service tax. This conclusion was reached by looking at the substance of the arrangement between RASB and TGV.
The DGC maintained their decision despite RASB’s application for review. RASB then filed an appeal with the Customs Appeal Tribunal that was subsequently dismissed.
The High Court’s decision
The High Court dismissed RASB’s appeal against the decision of the Customs Appeal Tribunal that dismissed the taxpayer’s appeal and maintained the DGC’s decision to subject the taxpayer to service tax. RASB’s business operations involved seeking out suppliers of advertising space that provided digital advertising space and airtime. Therefore, the supply of such advertising space, in substance, was a type of advertising service. Item 8, Group I of the First Schedule of the Service Tax Regulations 2018 defined taxable service as “all types of advertising services”, which included the provision of all types of advertising services including digital advertising. The High Court affirmed the Tribunal’s decision.
The Court of Appeal’s decision
The Court of Appeal concluded that there was no appealable error in the decision of the High Court that warranted intervention. Based on the terms of the agreement, RASB was clearly the sole agent appointed by TGV to market and sell the advertising space, subject to the terms and conditions thereunder. The terms of the agreement did not support RASB’s position that it was not acting as TGV's agent to get advertisers but instead, clearly provided that TGV did not give up control of the digital advertising space and airtime and included a revenue-sharing mechanism between TGV and RASB as the agent.
The supply of such advertising space by TGV was a type of advertising service that fell within Item 8, Group I of the First Schedule to the Service Tax Regulations 2018, and thus was subject to service tax under s 7(a) of the Service Tax Act 2018.
Conclusion
In essence, the agreement between RASB and TGV provided that TGV, as the media owner, had supplied digital advertising space and airtime to RASB, an advertising agency, with a revenue-sharing mechanism provided in the agreement. It was not disputed that RASB was appointed as a sole agent to sell and market advertising services for TGV and was bound by TGV’s directions. Thus, although the agreement appeared as a rental agreement, it fundamentally involved TGV providing advertising services.
RASB’s business operations involved seeking out suppliers of advertising space that provided digital advertising space and airtime, which in this case was TGV. Therefore, the supply of such advertising space, in substance, was a type of advertising service. No matter how the parties labelled and arranged their business relationship, if under the law it amounted to the provision of advertising services under the Service Tax Act 2018 and the Service Tax Regulations 2018, then it was taxable.
