SUMMARY
In a draft order, the tax authorities attributed about INR 55 Cr income to Netflix’s Indian PE in 2021-22
As per the tax officials, Netflix has established infrastructure and hired employees on a secondment basis from its parent entity in India
Earlier in February, Netflix’s co-CEO, Sarandos said that Netflix saw a 30% increase in engagement and watch time and a 25% rise in revenue in 2022 in India
US-based major OTT (over-the-top) player Netflix might be at the crosshair of the Indian government. In a fresh development, the income tax authorities are seeking to tax Netflix Inc’s income from the country.
According to a report by ET, in a draft order, the tax authorities have attributed about INR 55 Cr income to Netflix’s Indian PE (permanent establishment) for the assessment year 2021-22. This means, the government is considering levying a tax on the above mentioned amount.
The publication reported that according to tax officials, the streaming giant has established infrastructure and hired employees on a secondment basis from its parent entity (the US) to assist its streaming services in India, resulting in a potential PE and tax obligation within the country.
In the past, tax officials on multiple occasions have mentioned that presence of seconded employees that are loaned for a short period of time, would result in the formation of a PE of the foreign company in the country.
This could possibly be the first instance where India is applying tax on the income earned by a foreign digital company offering electronic commerce services to users in India.
Earlier this year, Netflix’s co-CEO Ted Sarandos said that India is the fastest-growing market for the streaming service. Speaking at an event, Sarandos said that Netflix saw a 30% increase in engagement and watch time and a 25% rise in revenue in 2022 in India.
The growth can be attributed to Netflix’s aggressive efforts in reducing subscription costs and increasing the production of India-focussed content.
Before the price cuts, Netflix’s mobile-only plan was priced at INR 199 per month, while its basic plan, which allows access to content across all devices, used to cost INR 499 per month.
In December of 2021, the streaming major brought down the mobile-only plan to INR 149 and the basic plan (for all devices) to INR 499.
Explaining Netflix’s success in the Indian market against others in the segment, Sarandos said, “Unlike many companies in California, we manage India in India.’’
Sarandos’ statement came almost a year after Netflix CEO Reed Hastings expressed his frustration on Netflix failing to crack the code in the country.
“The thing that frustrates us is why we haven’t been as successful in India, but we are leaning in there,” Hastings said in January 2022.
As Netflix strives to maintain its user subscription base, Disney+Hotstar, another prominent OTT platform, is experiencing a migration of its customer base to Reliance’s Jio Cinema. This shift occurred against the backdrop of Disney+Hotstar’s failure to renew its streaming rights for IPL, HBO, and F1 content.
