IT department looking to tax Netflix’s India operations: Reports

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India is taking steps to impose tax on income generated by Netflix Inc’s from streaming services in the country, reported Reuters citing a Economic Times reported.

In a draft order, the tax authorities attributed an income of about 55 crore ($6.73 million) to Netflix’s Indian permanent establishment (PE) in the assessment year 2021-22, the report added. 

This is the first instance in which India will tax foreign digital companies that provide electronic commerce services to customers. The tax officials reasoned that the US firm had some employees and infrastructure from the parent entity on secondment in India to support its streaming services, leading to a PE and tax liability, the publication reported. This has led to the establishment of a permanent presence in India, which in turn creates a liability for taxes.

The move is part of India’s efforts to regulate the digital economy and ensure that foreign companies pay taxes on the revenue they earn in the country. The Indian government has been discussing the introduction of a digital tax for some time now, and this action against Netflix could be seen as a test case for future taxation of other foreign digital companies.

Netflix did not respond to a Reuters’ request for comment.

Netflix Inc beat Wall Street earnings estimates for the first quarter but offered a lighter-than-expected forecast on Tuesday, demonstrating the challenges the mature streaming service faces in its pursuit of growth.

The company said it shifted a wider launch of a plan to crack down on unsanctioned password sharing into the second quarter to make improvements, delaying some financial benefits, but said it was pleased with results so far.

Revenue and earnings for the first quarter came in roughly in line with the average analyst estimates from Refinitiv with revenue of $8.162 billion.

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