Centre Plans To Tax Streaming Income Of Netflix In India

Netflix rolled out its streaming services in India in 2016 and currently has over 6 million subscribers in the country.

New Delhi: The government of India is intending to tax Netflix Inc.’s income earned from streaming services in the country, the Economic Times reported quoting people familiar with the matter.

This will be the first such move by Indian government to tax overseas digital companies providing electronic commerce services to consumers in the country. It is said that the income tax authorities have held that Netflix has a permanent establishment (PE) in India and is thus liable to get its income in the country assessed for tax.

As per the report, the tax authorities in a draft order, attributed about Rs 55 crore income to Netflix’s Indian PE in the assessment year 2021-22.

The tax officials have reasoned Netflix had some infrastructure and employees from the parent entity on secondment in India to support its streaming services, leading to a PE and tax liability in the country.

This is not the first time that the tax authorities saying that the presence of seconded employees, those loaned for a short period, formed a permanent establishment of the foreign company in India.

Netflix rolled out its streaming services in India in 2016 and currently has over 6 million subscribers in the country.

According to Netflix Entertainment Services India’s financial data, sourced by Tofler, the company ended FY21 with gross revenue of Rs 1,529.36 crore. Netflix India posted a 30% growth in total viewing hours year-on-year, while revenue rose 25% in FY21-22 from a year earlier, Monika Shergill, vice president, content, said in a recent interview.

India is the largest market in the world by time spent on over-the-top (OTT) services, according to an EY media report. Experts say that subscription revenues for the OTT market in India are poised to touch $3 billion by 2024.

India had in 2016 introduced the so-called ‘Google tax’ on digital advertisements and widened it in 2020 to include e-commerce supplies or services to address the issue of income of digital companies escaping taxation in the country despite earning revenues through a large user base.

Tax experts say global digital companies will need to examine their operations in the country from a tax point of view.

“Global businesses which are ‘born digital’ need to take extra precautions to ensure there is no significant economic presence created in India by virtue of their business models,” said a leading tax expert, who did not want to be identified.

Another tax expert said, “In cases where such presence is asserted by tax authorities, the issue of attribution of profits becomes extremely complex and even arbitrary in the absence of specific guidelines.”

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