Italy Investigating Netflix on Alleged Tax Evasion

Italian officials have reportedly opened an investigation into Netflix regarding possible tax evasion operating its subscription streaming video service in the country.

Reuters, citing a source familiar with the situation, said prosecutors in Milan opened the inquiry despite the fact Netflix does not have a physical presence in the country.

Netflix Italy has about 1.4 million subscribers who access content through servers, desktop computers, TVs and mobile devices, which officials say amounts to a physical presence in the country.

Netflix bases European operations out of Amsterdam, Holland.

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Italy has pursued similar investigations of Apple, Facebook and Amazon, reportedly resulting in substantial fines and tax payments.

With the proliferation of e-commerce and streaming video, local and national governments have recognized a potential fiscal windfall targeting companies operating for-profit operations within their borders without physical presence.

Dubbed the “Netflix tax,” Chicago earlier this year became the first U.S. city to collect taxes ($2 million) from media/tech companies operating services within its city limits.

Netflix, Amazon Prime Video and Spotify, among others, have filed litigation against the 9% tax Chicago officials imposed on streaming entertainment services four years ago.

States of Iowa, Maine, Wisconsin and Colorado, among others, have imposed taxes on Internet-based companies operating within their borders.

Lawmakers in Georgia had considered taxing Netflix and other streaming services to help pay for broadband infrastructure deployment in rural parts of the state.

Netflix and other streaming platforms were removed from verbiage associated with House Bill 887, after a local poll showed 65% of consumers were opposed to taxing Internet services.

Notably, Netflix in 2018 received a €57,000 ($70,385) tax rebate in the U.K. — despite generating a reported £700 million ($864 million) in revenue from 10 million subscribers in the region.

 

AT&T CFO: Corporate Tax Cut a Boon to Corporate Debt

To fiscal hawks, AT&T’s $85 billion acquisition of Time Warner heightened concerns regarding the telecom’s burgeoning corporate debt.

In an era of shrinking pay-TV households and industry consolidation, Wall Street hasn’t taken lightly to AT&T’s $183 billion debt through the third quarter (ended Sept. 30, 2018) following the acquisition.

The company’s stock was down more than 20% at the end of 2018 with a debt ratio of 2.8. The net debt to pre-tax earnings ratio indicates how many years it would take for a company to pay back its debt if net debt and pre-tax earnings are held constant.

Wall Street looks for a company to have a debt ratio between 0.3 and 0.6, according to some analysts. AT&T has pledged to reduce its debt by $20 billion in 2019, at debt ratio to 2.5.

Speaking Jan. 9 at the Citi 2019 Global TMT West confab in Las Vegas, AT&T CFO John Stephens reiterated management’s vow to streamline debt through cost-cutting and asset sales — including its stake in Hulu.

Stephens also reminded analysts that with interest rates at historically low levels, combined with President Trump’s 40% cut to corporate tax rates, debt can be viewed from a different perspective.

“You lower your federal tax rate by 40%, it has an impact. And it’s real. And it’s economic. It’s cash,” Stephens said. “When you think about those two changes, I understand how people might have a differing view on leverage levels. We’re sticking to what we’ve told you and we’re really focused – laser focused on 2019 and getting it into that 2.5 range.”