- The Indian government is considering taxing Netflix Inc’s income generated from streaming services in the country.
- This is the first time overseas digital companies are being taxed in India for providing electronic commerce services.
- Netflix’s Indian permanent establishment (PE) earned through streaming its services in India, according to the draft order, and is liable to be assessed for tax.
- In 2016, Netflix launched its streaming service in India, which currently has more than 6 million subscribers.
- Netflix India’s vice president, content, said that the company’s total viewing hours increased by 30%, and revenue increased by 25%. India contributed the highest net subscriber additions globally in 2022.
The Indian government is considering taxing Netflix Inc’s income generated from streaming services in the country, people familiar with the matter told a leading media house. This is the first time overseas digital companies are being taxed in India for providing electronic commerce services.
A US-based entertainment company is deemed to have a permanent establishment (PE) in India, requiring its income in the country to be taxed. The news agency could not independently verify this news development.
Netflix’s Indian permanent establishment (PE) earned through streaming its services in India, according to the draft order, and is liable to be assessed for tax. According to the authorities, Netflix Inc had some employees on secondment in India to support its services, resulting in tax liability, as per the report. In the past, tax authorities have ruled that seconded employees, even those loaned for a short time, constitute a permanent establishment. In 2016, Netflix launched its streaming service in India, which currently has more than 6 million subscribers. Netflix Entertainment Services India ended FY21 with gross revenue of Rs 1,529.36 crore.
Netflix India’s vice president, content, said that the company’s total viewing hours increased by 30% from a year earlier, while revenue increased by 25%. With a slate of Indian originals and licensed movies, India contributed the highest net subscriber additions globally in 2022 following the launch of an aggressive pricing plan in December 2021, the report added.
A draft order can be challenged by the assessee company before the assessing officer (AO) or the Dispute Resolution Panel (DRP) in international taxation. Following the AO’s consideration of objections, a final order will be issued, as per the report. In the event the assessee approaches the DRP, the panel has nine months to give its decision, which is binding only on the income tax department and not on the assessee. Appeals can be filed against the AO’s final order with the commissioner. It is possible for both parties to appeal the decision of the latter.
India raised the concern over the right to tax digital revenues in the jurisdiction where the income is generated at the Organization for Economic Co-operation & Development (OECD), the global body responsible for international tax rules.
According to the OECD, its Base Erosion and Profit-Sharing framework aims to address the issue of taxing digital companies such as Netflix that do not have a local presence.
(With inputs from agencies)
