Netflix Japan unit fails to declare ¥1.2 billion in taxable income

A Japanese unit of video streaming giant Netflix Inc. failed to declare ¥1.2 billion in taxable income over three years through 2019, sources familiar with the matter said Tuesday.

The Tokyo Regional Tax Bureau found out about the underreporting following a probe on the Tokyo-based firm, with authorities saying the firm should have been paid more in terms of profit allocation by a Netherlands-based unit of Netflix, the sources said.

About ¥300 million in additional taxes, including on the underreported amount, is expected to be levied on the Japanese unit, which is in charge of managing contracts with film production companies.

The Japanese company had bought the rights to stream content from multiple production companies. It then resold the rights to the Netherlands unit, which in turn made a disproportionately bigger profit out of such transactions, according to the sources.

The tax bureau determined that while the Japanese unit was paid for the outlays for acquiring such streaming rights, it did not receive the commensurate profit allocation.

The company amended its tax returns after having internally discussed the matter in light of Japanese tax law, an official of the Japan unit said.

Netflix, which started its streaming service in 2007, now operates in more than 190 countries and regions. The number of its subscribers worldwide has risen to more than 200 million, of which 5 million are in Japan.