On watchlist: Government seeks to tax Netflix income in India

India is seeking to tax Netflix Inc.’s income earned from streaming services in the country, people familiar with the matter said. It’s the first such move to tax overseas digital companies providing electronic commerce services to consumers in India, they said.

The income tax authorities have held that the US-headquartered entertainment company has a permanent establishment (PE) in India and is thus liable to get its income in the country assessed for tax.

In a draft order, the tax authorities attributed about Rs 55 crore income to Netflix’s Indian PE in the assessment year 2021-22, they said. 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. Netflix did not respond to queries from ET.


Tax authorities have in multiple instances in the past held 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.

Also read | OTTs may not bankroll films with a poor box office show

India contributed the highest net subscriber additions globally in 2022, driven by the launch of an aggressive pricing plan in December 2021, backed by a slate of Indian originals and licensed movies.

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.

Typically, in the case of international taxation, the assessee company can file an objection before the assessing officer (AO) or the Dispute Resolution Panel (DRP) against a draft order. A final order will be issued by the AO after taking note of objections.

If the company approaches the DRP, the panel has nine months to give its decision, which is binding on the income tax department but not on the assessee. The AO’s final order can be appealed at the commissioner, appeals. The latter’s decision can be appealed by both parties. India has made a case at the Organisation for Economic Co-operation & Development (OECD), the global body responsible for international tax rules, for the right to tax digital revenues in the jurisdiction where they are derived.

The OECD’s proposed Base Erosion and Profit Sharing (BEPS) framework seeks to address the issue of taxation of digital companies such as Netflix that beam services without having a local presence.

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.”

Globalization and the rise of cross-border transactions have triggered a conflict between countries to tax multinational corporations (MNCs). Inspite of there being no physical presence, one of the most common tax issues debated is having a taxable presence of MNCs [which is referred as Permanent Establishment (PE)], where a country seeks to tax the income of foreign companies. India too has adopted an assertive stance, alleging many MNCs of having a PE and tax their business profits generated from India,” saidRohinton Sidhwa, Partner, Deloitte India.