Mumbai ITAT Quashes ₹445 Crore Transfer Pricing Adjustment Against Netflix India

The Income Tax Appellate Tribunal (ITAT) Mumbai has recently set aside a Rs 445 crore transfer pricing adjustment on Netflix India for financial year 2021-22, rejecting the Revenue's claim that the company, as a licensee of its streamed content, owed higher taxes.

The authorities had imposed the tax because they treated Netflix India, the Indian arm of US-based streaming giant Netflix, as a licensee of Netflix US's intellectual property. They claimed the company owed deemed royalty and license fees for using the content library and proprietary streaming technology in India, far higher than Netflix India's declared fixed profit of just 1.36% on Indian sales.

Holding this characterization as an overreach, a coram comprising Judicial Member Amit Shukla and Accountant Member Renu Jauhri, observed

"To attribute 43% of global subscription revenue to an entity that neither owns nor develops the underlying content or technology is to violate the symmetry between function, asset, and risk the triad that defines economic ownership."

The Transfer Pricing Officer (TPO) raised the adjustment in 2021, which was confirmed by the Dispute Resolution Panel (DRP) on 28 September 2024. The DRP described Netflix India as an “extremely significant contributor” taking on investment and business risks, and endorsed calculating royalties for content and technology usage. The final assessment order was issued on 25 October 2024.

Netflix India argued that it only distributes access to the Netflix service. The company does not own or license content or technology. Its agreements explicitly state that Netflix India “did not acquire any intellectual property rights, nor was it entitled to any proprietary rights in respect of the service architecture, content, trademarks, or technology comprising the Netflix Service. There was no transfer of any know-how, model, invention, or other intellectual property, patented or otherwise, to Netflix India.”

The company also said that its Open Connect Appliances (OCAs) are simply storage devices to improve streaming. They contain no customer data, perform no algorithmic processing, and execute no playback or recommendation logic. Netflix India emphasized that its fixed 1.36% margin fully insulates it from business risk.

Agreeing with Netflix, the appellate tribunal rejected the Revenue's arguments.

It said, The TPO's conclusion that Netflix India provides 'Netflix Service as a whole, including content' is internally inconsistent. The TPO begins by recognising that Netflix India 'does not get access to content' yet concludes that it does. "Such self-contradiction, as the assessee rightly argued, betrays a perverse appreciation of record and an outcome-driven approach.”

The Tribunal also ruled that Netflix India's Transactional Net Margin Method (TNMM), a recognized method for determining the Arm's Length Price (ALP) of international transactions, was appropriate for computing profit.

The Tribunal, subsequently deleted the entire Rs 445 crore transfer pricing adjustment against Netflix India

For Assessee: Advocates Porus Kaka, Advocate, Divesh Chawla,Harsh Shah,

For Revenue: Pankaj Kumar 

Click here to read/download order