Indian tax authorities are attempting to tax Netflix for PE

According to a preliminary order, the streaming corporation has a permanent establishment in India, but one lawyer believes the government is on a "fishing expedition."

According to the Economic Times on Friday, May 12, Indian tax authorities are attempting to single out Netflix's US-India business.

A tax officer for the Central Board of Direct Taxes assigned 550 million ($6.7 million) in income to a permanent establishment (PE) in India in a draught order for the fiscal year 2021-2022.

According to the article, Netflix moved workers from its parent company to India to monitor business operations, perhaps resulting in a PE and tax penalty.

Worldwide business income is taxable in India for a resident corporation. According to the revenue-tax Act of 1961, non-resident corporations are taxed on their revenue if they have a "business connection."

The statute further states that if India and the non-resident's country of abode have a tax treaty, the tax treaty will take precedence.

Because India and the United States have a tax treaty, its restrictions will apply, resulting in a more limited definition of PE.

If the Indian tax authorities establish that Netflix US has a PE in India, the income from the PE will be taxed at 40%.

According to one Indian lawyer, taxation of foreign personnel deployed to India has been a difficult subject, and the nature of the operations, the wording used in agreements, and the role of the Indian corporation should all be thoroughly investigated.

“With Netflix, we understand that the US entity may have deputed its employees to Netflix in India, which, depending on the specific facts, may result in PE exposure for the US entity,” said Shruti KP, partner at IndusLaw in Mumbai.

“Having said that, given the huge popularity of the streaming service in India, the Indian tax authorities may also be on a fishing expedition,” she added.

“We will have to wait and see how the situation evolves.”

The government directive is part of India's goal to enhance digital economy regulations and ensure that overseas firms pay taxes on revenue made in their home country.

According to the Economic Times, this would be the first time India taxed an overseas digital corporation providing e-commerce services to consumers.

According to ITR sources, a 2% equalisation fee has been applicable to non-resident digital enterprises in some form since 2016, and to e-commerce beginning in 2020.

By fLEXI tEAM