Netflix (NASDAQ:NFLX) Entertainment Services (India) LLP is expected to file an appeal before the Income Tax Appellate Tribunal against a ₹196-crore ($26 million) tax demand. The move follows a ruling in favor of the Indian tax department by the Dispute Resolution Panel earlier this year. The tax department has accused Netflix of evading income tax in India, arguing that the streaming giant acted as a dependent agent permanent establishment of Netflix.
The tax demand is based on the company's operations from April to December 2020, during which it generated revenue above ₹1,145 crore ($154 million), with profits attributed to Indian operations calculated at ₹503 crore ($67.5 million). Netflix, with a market cap of $169.38 billion and a P/E ratio of 39.71 according to InvestingPro data, offered only ₹13.36 crore ($1.8 million) in taxes. The tax department asserts that the remainder of the profit, attributed to operations carried out of India through a permanent establishment arrangement, is taxable in India and amounts to ₹490 crore ($65.7 million), leading to the disputed tax demand of Rs 196 crore.
A Netflix spokesperson stated, “We fully adhere to tax laws and their requirements globally,” but did not provide further details on the case.
The tax department additionally argued that Netflix's Open Connect Appliance (OCA), a content distribution network developed by the company to deliver its TV shows and movies, was based out of India and thus liable for taxes there.
India is a significant market for Netflix, contributing the highest net subscriber additions globally in 2022, driven by an aggressive pricing plan launched in December 2021. According to an EY media report, India is the world's largest market by time spent on over-the-top services, with subscription revenues for this market projected to reach $3 billion by 2024.
In response to digital companies earning revenues through large user bases without paying taxes in the country, India introduced a 'Google (NASDAQ:GOOGL) tax' on digital advertisements in 2016 and expanded it in 2020 to include e-commerce supplies or services. Netflix's ongoing tax dispute reflects the complexities of this evolving taxation landscape.
As a prominent player in the Entertainment industry, Netflix has been experiencing slowing revenue growth recently, based on InvestingPro Tips. The company's revenue growth was reported at 3.53% for LTM2023.Q2. Despite trading at a high earnings multiple, the stock has fared poorly over the last month, with a 1-month price total return of -13.54%. However, the company's return over the last year was high, at 59.11%. For more insights like these, interested readers can check out InvestingPro which offers additional tips for informed investing.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.