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Netflix Settles Tax Dispute with Italy

24th May 2022

TP in 5 social image italy

The digital economy has raised many questions for many taxpayers, but one of the biggest is, “What constitutes a permanent establishment in a virtual business world?” Netflix and the Italian tax authorities have been grappling with this issue for years. From 2015-2019, Netflix delivered its streaming service to 2 million users in Italy, through a series of fiber-optic cables and computer servers. According to the Italian tax authorities, the infrastructure constituted a permanent establishment and therefore, a taxable presence. Could Netflix owe millions in back taxes simply because its fiber-optic cables called Italy home? Certainly, the Italian government thought so. In fact, three years ago, Milan prosecutors opened an investigation into whether Netflix was engaging in tax avoidance. Last week, Netflix ended the dispute by agreeing to pay $58.9 million to the Italian government. But now when it comes to a taxable presence in Italy, Netflix seems to be taking a more traditional approach: The streaming giant recently opened an office in Rome.