NEW DELHI: In a big relief to Netflix India, the Income Tax Appellate Tribunal (ITAT), Mumbai, has dismissed a Rs 445-crore tax demand against it, and rejected the tax department’s attempt to recharacterise Netflix Entertainment Services India LLP as a full-fledged content provider. The tax demand pertains to the assessment year 2021–22.
A Bench comprising Amit Shukla and Renu Jauhri held that Netflix India operates merely as a limited-risk distributor of access to the global Netflix streaming service, rather than as an entrepreneurial content-and-technology service provider as alleged by the transfer pricing officer (TPO) and the Dispute Resolution Panel (DRP).
The Tribunal examined the distribution agreement between Netflix India and its associated enterprises (AEs) and found the tax department’s inference to be internally inconsistent. It noted that the very paragraph cited by the TPO “begins by recognising that Netflix India does not get access to content yet ends by concluding that it does.”
Calling this a “perverse appreciation of record and an outcome-driven approach,” the ITAT said such contradictions undermined the department's case.
The Tribunal observed that Netflix India’s activities are limited to promotion, distribution of access, invoicing, local customer support, and regulatory compliance. It holds no intangible assets, and its risks are confined to routine operational and regulatory exposures, all fully indemnified by its AEs. The entity earned a return on sales (ROS) of 1.36 percent, consistent with its low-risk, cost-insulated distributor profile.
The ITAT also observed that Netflix India’s employees are not involved in content acquisition, technology design, or platform development, but only in marketing and operations support.
Rejecting the Revenue’s contention that Netflix India “obtains content and technology on licence,” the ITAT said this was inconsistent with the TPO’s own earlier finding that the Indian entity “does not get access to content.”
The Tribunal held that attributing 43 percent of global subscription revenue to an entity that neither owns nor develops the underlying content or technology “violates the symmetry between function, asset, and risk — the triad that defines economic ownership.”
The ITAT concluded that Netflix India performs only routine distribution and marketing support functions under close supervision of its AEs, owns no valuable intangibles, and undertakes no DEMPE (development, enhancement, maintenance, protection, and exploitation of intangibles) functions. Accordingly, its profitability benchmark under TNMM reflected an arm’s-length outcome.
The tribunal thus deleted the Rs 445 crore transfer pricing adjustment, ruling fully in favour of the assessee.