Netflix Australia Is Facing Criticism for Avoiding Australian Taxes

It is no secret that high-net-worth individuals and businesses always try to pay the lowest tax rates that they can. After all, paying less in taxes allows them to increase their profit margins. Based on recent revelations, it seems that Netflix Australia has taken this avoidance of taxes to the extreme, paying barely any tax. Unsurprisingly, this has led to a great deal of criticism.

The Specific Figures

It came to light that in 2018, Netflix Australia only paid Australian taxes totaling $341,793. This comes even though the company made between $600 million and $1 billion in that calendar year just from Australian subscribers. For those who do not want to do the math themselves, this means that Netflix Australia paid only 0.04 to 0.06 percent in taxes out of its Australian income.

Despite this incredibly low amount, it is still higher than the taxes Netflix paid in Australia for 2017, which was just $175,516. As such, it almost doubled the amount of income tax paid. Even so, this is just a small fraction of Netflix Australia’s profits.

How Netflix Australia Avoids Taxes

As with most other companies that work to avoid taxes, Netflix Australia does so via the use of tax havens with no or very low tax rates. In Australia, part of this comes from the fact that local Netflix clients do not get billed by the company’s local incorporation. Instead, Netflix International BV bills them. This is a private company in Amsterdam and a subsidiary of the American Netflix Inc.

Essentially, Netflix Australia serves as a content delivery support, payment processing, and collection business that charges Netflix International BV. In 2018, Netflix International BV paid a service fee equaling to $12.1 million to Netflix Australia. In 2017, this fee was $6.5 million. In both years, this service fee was the only part of Netflix Australia’s local revenue. Somehow, Netflix Australia was able to record profits of merely $400,129 with the Australian Securities and Investments Commission in 2018. In 2017, the recorded profit was $255,988.

According to tax experts, Netflix Australia would likely argue that the subscription revenue in the financial accounts is non-Australian sourced income and earned by an entity that is a non-resident. This would be legally acceptable since the company barely had any physical presence in the country until 2019.

As of the end of 2018, Netflix Australia held $21.6 million of revenue for Netflix International BV, which was collected from Australian clients. The company has previously confirmed it collects over $100 million from Australian consumers for Netflix International BV. The key fact is that this revenue is not recognized in Australia. Additionally, Netflix International BV does pay the Australian Taxation Office GST for Australian-collected revenue, but that does not appear in the accounts of Netflix Australia.

It Is Completely Legal

Unfortunately for those who are unhappy with the low corporate taxes paid by Netflix Australia, this is completely legal. Netflix follows all of the international and Australian tax laws. It simply knows how to use those laws to its advantage as a way to minimize taxes.

What Will Happen in 2019?

Netflix Australia may find itself paying more Australian taxes in 2019 due to some changes in its setup. This includes the opening of its first local office. The company has also hired local employees, including Debra Richards (former Ausfilm chief executive) for the role of head of production policy in the Asia-Pacific region, Nick O’Donnell (former Seven exec) as public policy director, and two former Twitter employees, Tony Broderick as editorial and brand head and Nathan Burman as communications head.

Australia faces similar low taxation issues with other major tech giants, including Google, IBM, Apple, Atlassian, and Facebook. For now, it is not clear if Australia will change tax regulations anytime soon to ensure these companies pay their fair share.

Sources:

https://www.afr.com/companies/media-and-marketing/revealed-how-much-tax-netflix-pays-20191025-p534aa

https://www.businessinsider.com.au/netflix-facebook-google-ibm-atlassian-tech-tax-australia-2019-10