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Strange Shore Income: Netflix Accused of Offshore Profit Transfer


The British analytical center Tax Watch published a report in which it accused Netflix streaming service of tax evasion through the withdrawal of funds to offshore accounts. The company receives tax credits in the UK, however, according to analysts, the proceeds of projects taken for the platform by local manufacturers are placed in low tax areas. In response, Netflix stated that it complied with the laws of each country where it conducts business. Earlier, companies such as Amazon, Microsoft, and Apple were accused of tax evasion.

The British analytical center Tax Watch accused the management of the streaming service Netflix in transferring profits from the company's international projects to the offshore zone. The corresponding report was published on the center's website.

According to experts of Tax Watch, the company transferred a total of $ 327.8 million to $ 430 million in profit from its revenues outside the United States to low-tax countries.

“In the report, we analyze the organizational structure of Netflix, indicating that the company uses a tax evasion scheme similar to that used by many other multinational companies operating in the digital space,” the report says.

According to Tax Watch, three companies of the FANG group (recently Apple also joined it) - Facebook, Amazon and Google - have been regularly subject to tax audits in recent years. However, the fourth company, Netflix, paid less attention to the tax situation.

This is due to the fact that initially Netflix was not the most profitable company compared to other technology giants. However, in recent years, service revenue has increased significantly.

“Revenue is not collected in the country where it is received. Instead, an offshore company charges consumers. Apparently, after that, the parent company transfers money to the tax haven through internal corporate transactions, ”the report says.

In addition, Tax Watch experts note that in the UK Netflix receives tax credits mainly due to high-quality projects created for streaming services by British companies (including such projects as Sex Education and Crown series). And in 2020, the size of these deductions, according to analysts, could reach tens of millions of dollars.

Thus, the company spends expenses where it is possible to obtain tax benefits, but the revenues are transferred to regions with low taxes, taking advantage of both systems at the same time.

  • © Shot from the series “Sex Education” (2019)

Netflix representatives commented on the analytical material of Tax Watch, noting that they comply with the law regarding taxation rules in different countries.

“Corporate taxation is an important and widely debated issue. Ultimately, taxation rules are established by the authorities, and we abide by these rules in every country where we operate, ”Deadline quoted Netflix’s spokeswoman as saying.

Meanwhile, not only Netflix was accused of tax evasion. In December, the non-profit organization Fair Tax Mark published a report which cited data on violations by Amazon, Facebook, Google, Apple and Microsoft. It was noted that the removal of profits from taxation occurred by redistributing income to offshore zones or countries with low taxes.

Fair Tax Mark experts mainly allocated Amazon: it was noted that over the past 10 years, with a profit of $ 26.8 billion, the company paid only $ 3.4 billion of tax.

In figures and facts

Taxes from the income of a streaming giant such as Netflix are a tidbit for countries where this service is available. For the third quarter of 2019, Netflix managed to earn more than $ 5.2 billion, and the company's revenue for 12 months by September 30 was $ 18.8 billion.

Netflix raised about $ 15.8 billion in 2018. Thus, the company's revenue continues to grow.

These results are provided by subscribers, which from year to year is becoming more and more. In December 2019, the streaming service shared statistics, according to which by the third quarter it had 158.3 million users worldwide (60.62 million of them live in the United States).

Moreover, 5.5 million viewers at that time used the free trial version of the subscription. It is also interesting that platform users are very loyal - according to opinion polls, most are ready to continue watching Netflix, even if the service adds ads or increases the cost of the subscription.

Since the end of March 2017, the number of Netflix users in the Asia-Pacific region has tripled (from 4.7 million to 14.5 million), while in Europe, Africa and the Middle East it increased by 2.4 times, reaching the mark of 47.4 million .

The use of DVD rental services, which were a priority during the formation of Netflix, is mainly reduced - if in 2011 this area of ​​the company attracted 11.7 million Americans, then in 2018 it only had 2.7 million customers.

However, in July 2019, the streaming service experienced an outflow of the audience due to an increase in the cost of subscribing and transmitting the series “Office” and “Friends” to competitors. Then the number of subscribers decreased by hundreds of thousands. After such disappointing news, the company's shares fell by 11%, however, following the results of a very successful third quarter, prices partially recovered.

Source: russiart

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