In a first-time-ever action, the Indian government is contemplating taxing income of Netflix generated from streaming services in the country, according to sources. Overseas digital companies are not yet taxed in India for providing electronic commerce services, without a permanent establishment.
The Indian government is contemplating taxing income of Netflix generated from streaming services in the country, according to sources. This is the first time overseas digital companies are being taxed in India for providing electronic commerce services.
The US-based entertainment company is deemed to have a permanent establishment (PE) in India, requiring its income in the country to be taxed.
As per the draft order, Netflix acquired Income from India through streaming services and is accountable for tax assessment. The tax obligation is a result of Netflix Inc’s employment of seconded employees to support its services in India.
Even if seconded employees are only loaned for a short period, previous tax authorities have ruled that they form a permanent establishment. In 2016, Netflix launched its streaming service in India, which now boasts over six million subscribers.
Netflix Entertainment Services India earned a gross revenue of Rs 1,529.36 crore at the end of FY21. Monika Shergill, Netflix India’s vice president of content, revealed in a recent interview that India had the highest net subscriber additions globally in 2022 following the introduction of an aggressive pricing plan in December 2021, along with Indian originals and licensed movies.
The assessee company may challenge the draft order before the assessing officer (AO) or the Dispute Resolution Panel (DRP) in international taxation.
Section 144C of the Income Tax Act, 1961 governs the provisions relating to DRP and defines DRP as a collegium comprising three Commissioners of Income Tax constituted by the Central Board of Direct Taxes for this purpose.
When the Assessing Officer (AO) proposes by a way of draft assessment order made under Section 144C of the Income Tax Act to make any variation in the income or loss stated in the return filed by the assessee on the basis of Transfer Pricing adjustment and invites assessee’s acceptance or objections to the same.
Assessee may communicate his acceptance to the order or may file an objection before the DRP against the proposed assessment order. The DRP after giving the opportunity of hearing to the assessee, passes a suitable order in the case within 9 months.
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