New Delhi: India being the largest market in the world in terms of the time spent on over-the-top (OTT) services, is aiming to tax income generated by Netflix in the country.

The draft order by tax authorities has backed their claims by saying that the US-headquartered entertainment company has now set up a permanent establishment (PE) and thus is liable to get its income in the country to be taxed.

The tax authorities, in the draft order assigned an income of about Rs.55 crores ($6.73 million) to Netflix’s Indian permanent establishment (PE) in the year 2021-22, the Economic Times reported.

Reason to tax Netflix

The authorities have backed taxing of the Netflix by giving reasons like the firm having some infrastructure and employees from the parent company on secondment in India which led to Permanent Establishment (PE) and therefore, it is liable to pay tax in the country. However, Netflix did not give any response to the queries asked by the Economic Times.

This is for the very first time that India is taxing any foreign digital company that serves electronic commerce services to the customer.

Why is India doing that?

By doing so, India will not only be regulating the digital economy but also ensuring that foreign firms are paying taxes on the profits they generate from the country.

For quite some time, the Indian Government is also looking into the matter of introducing digital tax and this action against Netflix could be seen as a test case for future taxation in regards to other foreign digital companies.