Tax authorities found that the Japanese arm of Netflix Inc. failed to report a total of 1.2 billion yen ($10 million) in revenue in the three years to December 2019, sources said.
The Japanese unit will probably be ordered to pay around 300 million yen in back taxes, including penalties.
The sources said the Tokyo Regional Tax Bureau noted that Netflix GK, a Tokyo-based subsidiary of the major US online video streaming service provider, should have received a share of profits from a foreign group company for its contribution to profits.
The Japanese unit is responsible for signing contracts with domestic film and anime production companies to acquire the rights to stream their works on Netflix, the sources said.
A group company in the Netherlands obtained these rights from Netflix GK to operate the online streaming services. The Dutch company pays the Japanese branch the rights acquisition costs and other expenses incurred in the process.
The Tokyo regional tax office has determined that Netflix GK should also have received a certain portion of the profits from the Dutch company, which posted strong profits largely thanks to the broadcasting rights it obtained from the Japanese unit. .
The bureau concluded that Netflix GK failed to report a total of 1.2 billion yen in revenue after calculating how much profit it should have received.
Netflix GK also collects monthly fees ranging from around 1,000 yen to 2,000 yen from Netflix subscribers in Japan. It recorded an estimated revenue of 30 billion yen for the fiscal year ending December 2019.
But most of this income was transferred to the Dutch company, which provides the streaming services, under the guise of “streaming fees”.
This means that these corporate taxes were mainly paid in the Netherlands, which offers various tax breaks to multinational companies, in order to minimize the payment of taxes in Japan.
Other countries have also faced the same problem: global companies avoid paying taxes in jurisdictions where they have users but are not physically present there.
Japan and 135 other nations and regions agreed in October to introduce a new tax system to address the problem, particularly targeting so-called GAFAs (Google, Apple, Facebook and Amazon).
The new system would allow countries where these tech giants have their customers to impose corporate taxes on them by distributing rights to a levy on a portion of corporate profits to those countries based on corporate profits.