Can Netflix India be treated like Netflix’s global brain?

In the last few years, India’s tax authorities have increasingly questioned how digital businesses operate within the country. But few cases captured the industry’s attention like the one involving Netflix India.

What started as a routine transfer pricing assessment quickly turned into a debate over whether Netflix India was simply a local distributor or the real brains behind Netflix’s global content and technology.

The Revenue claimed the latter.
The Tribunal disagreed.

What followed was a Rs. 445 crore transfer pricing dispute that now stands as one of the most important rulings for digital and OTT companies operating in India.

Netflix India’s Real Role

At the centre of the case was a simple question: what does Netflix India actually do?

The ITAT carefully examined its functions:

• Distributing access to the Netflix streaming service for Indian subscribers
• Invoicing and local customer support
• Marketing and promotional activities
• Regulatory and statutory compliance

Nothing more. And certainly nothing close to developing or controlling Netflix’s global content or platform.

The Tribunal emphasized that Netflix India has no ownership of the content library, no involvement in technology development, and no entrepreneurial risk associated with those assets.

Why the Revenue’s Stand Collapsed ?

The tax authorities tried to re-characterize Netflix India as a content or technology entrepreneur an entity that performs DEMPE (Development, Enhancement, Maintenance, Protection, Exploitation of intangibles) functions.

But the ITAT found no evidence of:

• Content development
• Enhancement or maintenance of platform technology
• Protection or exploitation of global intellectual property

Without these, the Revenue’s re-characterization had no factual basis.

TNMM Margin Accepted; Rs. 444.93 Crore Adjustment Deleted

Netflix India had applied the Transactional Net Margin Method (TNMM) using a cost-plus model that yielded a return on sales of about 1.36 percent. The Tribunal found this margin appropriate for a limited-risk distributor performing routine support functions.

The entire adjustment was struck down.

Why This Matters for the Digital Economy

This ruling reinforces a vital principle: tax authorities cannot assume control over intangibles simply because a company is part of a global brand.

For digital and OTT players, this case sets a strong precedent:

• Contractual reality matters
• DEMPE analysis must be evidence-backed
• Limited-risk entities can legitimately operate as distributors

As India continues tightening scrutiny over digital business models, this decision offers valuable guidance.

What Comes Next?

The ruling currently applies only to AY 2021–22. Whether the Revenue will appeal the case remains to be seen. For future years, digital MNEs should expect similar scrutiny — and prepare accordingly.

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