According to reports, people familiar with the matter revealed on Tuesday that the Japanese unit of video streaming giant Netflix failed to declare 1.2 billion yen in taxable income in the three years ended 2019.
The Tokyo local tax bureau investigated the Tokyo-based unit and found it underreported revenue, the sources said. Based on its profits, the company owes more tax than it actually pays, authorities said. Japan’s tax authorities are expected to levy about 300 million yen in additional taxes on Netflix, including understated amounts.
Netflix Japan has purchased streaming content rights from various production companies. The company then resold the rights to its Dutch-based subsidiary, and the Dutch company made a disproportionately large profit from the deals, according to the sources.
The Japan Tax Agency determined that although the Japanese branch received the benefits from the streaming rights, they did not receive a corresponding profit distribution. An official at Netflix Japan said the company revised its tax return after internal discussions under Japanese tax laws.
Netflix has been offering video streaming services since 2007 and now operates in more than 190 countries and territories around the world. Its global user base has risen to more than 200 million, of which 5 million are from Japan.