With no physical presence in Italy, Netflix is facing allegations of tax crime based on its use of infrastructure to deliver digital content to 1.4 million Italian subscribers.
In pursuing tax evasion charges against Netflix, Italian authorities cite failure to file a tax return in the country as the basis for its charges of tax fraud.
Netflix is not alone in raising the ire of Italian tax regulators. American tech interests including Amazon, Facebook, and Apple have drawn the interest of Italian authorities looking to tax tech behemoths that are reaping profit from Italian consumers without returning a portion of that revenue to the country through taxes or investment.
Although Netflix has no office or other physical facility in the country, officials are counting infrastructure, such as routers, cables, and computer equipment, as sufficient to establish the presence of the company in the country. According to Variety, a Netflix spokesperson noted, “Netflix has been working closely with the Italian tax authorities. We pay all the taxes due in Italy, and other countries around the world. Netflix invests millions of Euros in Italian productions--helping to create jobs and support the local creative community.”
At issue is the changing paradigm of how global business is conducted. Across the EU, countries courted by multinational tech giants find themselves on the losing side of the balance sheet as profits made in their country are funneled out of the country to regions with more preferable tax environments, like Luxembourg, Ireland, Cyprus, or the Netherlands, where Netflix call home in Europe.
A fully fledged tax haven, the Netherlands offers a soft landing for corporations like Google, Uber, Ikea—and Netflix—reducing their tax exposure as they run revenue through foreign bank accounts located there. Like other offshore tax havens, the Netherlands works with multinationals to develop comfortable tax arrangements that bring revenue into the country, while reducing taxes for companies doing business in the European bloc.
Italian authorities have successfully pulled in billions of euros in penalties and fines for alleged unpaid taxes from Facebook, Amazon, and other global companies that have physical offices in Italy. The big difference here is that Netflix does not have physical offices in Italy.
It remains to be seen if Netflix will pay a tax settlement in the matter. Italian legislators have passed a law requiring companies like Netflix and Amazon that benefit through digital streaming to invest 30 percent of their revenue in local content, programming, and productions. With the programming power of these companies, the next hit Netflix series may be based in Rome. Stay tuned.
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