Netflix has agreed to pay €55.8 million to settle a tax dispute with Italian authorities. Investigators in Italy argued that the streaming giant was in breach of tax rules. However, Netflix says it believes it has complied with all relevant tax rules.
A spokesperson for Netflix insists that they ”believe that we have acted in full compliance with Italian and international rules."
The case raises a number of interesting compliance questions.
Streaming services and VAT
Digital services VAT is an important innovation adopted by tax offices around the world. A growing number of countries now impose VAT on non-resident suppliers of electronic services, including video and music streaming.
The digital services VAT is, increasingly, an important source of revenue. It also helps create a more level playing field for local and foreign providers of online services.
Local infrastructure and tax compliance
News reports indicate that the dispute between Netflix and Italian authorities was about more than online services. According to investigators, the streaming company owned advanced network infrastructure within Italy.
They contended that the infrastructure implied certain tax obligations, even though Netflix did not employ permanent staff in the country.
Any business that deploys local infrastructure to supply services should therefore pay careful attention to its potential tax obligations.
VAT and corporate income tax are highly complex at the best of times. For businesses that operate in multiple countries, it is quite common to incur VAT in multiple ways, often without even being aware of it.
In the case of apparently intangible products, such as streaming services, businesses may be at particular risk of overlooking compliance obligations. As we can see, even unintentional noncompliance risks significant penalties.
The critical importance of a holistic VAT compliance service
Regulators continue to update VAT policy to meet the realities of the digital economy. Businesses need advanced VAT compliance software that ensures full compliance and accurate record-keeping.
VAT IT provides world-class strategic VAT advice supported by powerful technology that keeps you fully compliant, throughout your value chain.