The Income Tax Department is seeking to impose a tax on Netflix Inc’s income earned from streaming services in the country in what is the first such move to tax overseas digital companies providing e-commerce services in India, according to an Economic Times report.
The income tax authorities have concluded that the US-headquartered entertainment company has a permanent establishment (PE) in India and is, therefore, liable to pay tax on the income it earns in the country.
The Income Tax Department has in several cases in the past ruled that if seconded employees of the parent company based overseas are working in India than the firm is deemed to have a “permanent establishment” in the country and is liable to pay tax. The same yardstick is being applied to Netflix.
The tax authorities are understood to have estimated Rs 55 crore as the income earned by the permanent establishment of Netflix in India during 2021-22, according to the ET report.
Netflix started its streaming its services in India in 2016 and has over 6 million subscribers in the country. The company earned a gross revenue of over Rs 1,500 crore, during 2020-21 financial year, according to Tofler estimates.
The Netflix case is also relevant for other digital companies who have large turnovers in India and are getting away without paying tax as on the claim that they do not have a permanent establishment in the country.