Netflix to Contest $26 Million Tax Demand in India

Netflix Entertainment Services (India) LLP is set to appeal a tax demand of ₹196 crore (approximately $26 million) before the Income Tax Appellate Tribunal. This follows a ruling earlier this year by the Dispute Resolution Panel in favor of the Indian tax authorities. The tax department alleges that Netflix has been evading income tax in India, claiming that the streaming service qualifies as a dependent agent permanent establishment.

The disputed tax demand stems from Netflix’s operations between April and December 2020, during which the company reported revenue exceeding ₹1,145 crore (about $154 million) and profits linked to its Indian operations totaling ₹503 crore (around $67.5 million). Despite a robust market presence and a valuation of $169.38 billion, Netflix only contributed ₹13.36 crore (approximately $1.8 million) in taxes. The tax authorities assert that the remaining profits, calculated at ₹490 crore (around $65.7 million), are taxable in India, leading to the tax dispute.

A Netflix representative stated, “We fully adhere to tax laws and their requirements globally,” but did not provide additional details regarding the case. The tax department also pointed out that Netflix’s Open Connect Appliance (OCA), a network designed to deliver its content, operates from India and is therefore subject to local taxation.

India has become a crucial market for Netflix, registering the highest net subscriber additions globally in 2022, largely due to an aggressive pricing strategy introduced in December 2021. According to a report by EY, India is the largest market in terms of time spent on over-the-top services, with subscription revenues expected to reach $3 billion by 2024.

In response to concerns over digital companies generating revenue without paying taxes in the region, India implemented a “Google tax” on digital advertisements in 2016, which was later expanded to include e-commerce activities in 2020. Netflix’s ongoing tax dispute illustrates the complexities of the shifting tax landscape.

As a leading player in the entertainment sector, Netflix has recently seen a slowdown in revenue growth. For the second quarter of 2023, its revenue growth was reported at 3.53%. Though the company remains valued at a high earnings multiple, its stock performance has suffered over the last month, showing a total return of -13.54%. However, its annual return remains robust at 59.11%.

This article was generated with AI assistance and reviewed by an editor.