Grandi Notizie: Netflix Expands Italian Presence

Italy in 2020 will begin imposing a 3% tax on digital services generating at least €5.5 million ($6 million) in annual revenue.

While the political move targets American streaming giants such as Netflix, Amazon Prime Video and the pending Disney+ platform, Netflix is hardly scaling back its Italian operations.

The SVOD pioneer, which reportedly has 1.5 million subscribers in Italy, has inked a deal with Comcast-owned satellite TV operator Sky Italia offering subscribers direct access to the service.

Netflix will be available to Entertainment Plus and Sky Q Platinum subscribers.

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Netflix began its partnership with Sky in 2018 in the United Kingdom, followed by Sky Deutschland.

“We [want to] make it easier for Sky customers and Italian families to access the complete Netflix experience,” Filippo Zuffada, EMEA partner marketing director at Netflix, said in a statement.

Indeed, Netflix CEO Reed Hastings was Italy this week to announce the opening of an office in the country as well as plans to invest €200 million ($220 million) in original Italian content production.

Establishing an office in Italy would also mitigate efforts by lawmakers seeking taxes from foreign online companies (notably Netflix) doing business within the country’s borders without a physical presence.

Netflix’s investment follows a previously-announced pact with Italian broadcaster Mediaset for the co-production of original Italian movies.

 

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.

 

European Union Proposes Tax Hike on Digital Companies

The European Union March 21 announced plans to implement an interim 3% tax hike for digital companies aimed at leveling the playing field between local and multinational companies based outside the region.

With almost half of the top 20 global companies by market capitalization digital operations (compared to 5% a decade ago), the EU says digital companies (i.e. Facebook, Google, Apple, Amazon and Netflix) pay an average tax rate half (9.5%) that of the traditional economy (23.3%) in member countries.

The trade union contends profits made through activities such as selling user-generated data and streaming video content are not captured by current tax rules.

Apple infamously parked more than $120 billion in Ireland to avoid taxes in the U.S. and other countries it operates in. A strategy the company reportedly had to outsource to Bermuda and Grand Cayman after Irish authorities sought to close loopholes.

Tax avoidance strategies used by Apple and other digital multinationals deny governments around the world as much as $240 billion annually in lost revenue, according to a 2015 estimate by the Organization for Economic Cooperation and Development, reported by The New York Times.

Netflix reportedly paid less than £400,000 ($565,000) in 2015 corporate taxes in the U.K. on revenue of £36.5 million.

Netflix told The Guardian it contributed financially in other ways, including wages, value-added taxes (VAT) and funding myriad British-based original content productions.

Maybe, but to USC law professor Edward Kleinbard, U.S. multinational firms are “global grandmasters” of not paying their fair share of taxes.

“[They employ] schemes that deplete not just U.S. tax collection but the tax collection of most every large economy in the world,” Kleinbard told the Times.

New EU rules would deem multinational digital companies having a European presence if they meet at least one of the following criteria: exceed €7 million in annual revenue in a member state, having more than 100,000 users or 3,000 business contracts in a member state in a taxable year.

The new taxes, which the EU believes would generate €5 billion ($6.1 billion) in annual revenue, would apply primarily to online advertising, sale of user-provided data and third-party ecommerce.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs at the EU, said the digital economy is a “major” two-way opportunity for Europe and digital firms based outside the region – with legal and fiscal concerns.

“Our pre-Internet rules do not allow our member states to tax digital companies operating in Europe when they have little or no physical presence here,” said Moscovic. “This represents an ever-bigger black hole … because the tax base is being eroded. That’s why we’re bringing forward a new legal standard as well an interim tax for digital activities.”