9News: Where your Netflix payments are really going

Next time you turn on Netflix, just stop and think about where your money is really going.

You know, your $9.99 a month for the basic service or $19.99 for the premium.

It’s likely that you’ll have never thought about it, of course, because when you signed up, the terms and conditions statement would have been too onerous and, besides, whoever reads that stuff?

But had you read the terms and conditions closely you would have found clause 8.1 –

“Governing Law. These Terms of Use shall be governed by and construed in accordance with the laws of the Netherlands,” the clause says.

You read right – the Netherlands.

Because when you signed up with Netflix, you signed up to Holland, not Australia. You want to have a legal fight with Netflix, get set to book your ticket on KLM.

As Max Mason in the Financial Review notes this morning, Netflix Australia’s estimated 5.3 million subscribers spend somewhere between $600 million and a $1 billion a year.  All that money goes straight to the Netherlands.

The result is, Netflix Australia paid just $341,793 according to accounts lodged with ASIC and published in today’s Financial Review.

Why is any of this important?

Because the Netherlands, despite an official corporate tax rate of 25 percent (not far off Australia) does not heavily tax dividends or royalties.

It also has what are known as mailbox companies. These provide shelter for companies with offshore income. The effective tax rate is 7.6 percent. Oxfam describes the Netherlands as the third most prominent tax haven in the world.

Is the picture becoming clearer now – HD clear?

Oddly, the Australian Tax Office and the Government thus far have not laid a glove on Netflix or the close-on billion dollar a year revenues it generates.

Because, as Mason points out, Netflix banks your money in Holland, but pays back a modest amount of money to its Australian subsidiary for administration and support.

All this – seemingly – is thoroughly legal, otherwise the tax office would be vigorously pursuing Netflix through the courts.

In June this year, the Federal Communications Minister Paul Fletcher told The Australian there is an argument that overseas streaming services should be paying tax in Australia because taxation from traditional broadcasters is dwindling.

Oddly, that’s not the reason foreign streaming services should be paying tax in Australia. They should be paying tax in Australia because the revenue is generated right here, not in Holland.

And this means that any multi-national company is immediately at an advantage over a local company because one of their biggest cost inputs- tax- is significantly reduced.

If they want to price more aggressively to win more customers, they can.

And Netflix has shown it is prepared to push up prices: its premium service went from $17.99 to $19.99 a month in October.

Government understood the problem of global companies pushing their Australian revenues overseas to low-tax regimes by introducing diverted profits tax, which is sometimes called the Google tax.

This hits companies with a global revenue of more than $1b and Australian revenue greater than $25m with a 40 percent tax on all local profits.

But as was just explained, Netflix local revenue last year $12.1m, underneath that $25 million threshold. Technically, its sales are not acknowledged as the $600m to one billion it charged Australian customers.

One of the hallmarks of Australia’s tax system is that it be fair to all taxpayers.

This is important because if some get away with tax avoidance, the ordinary taxpayers questions why they pay their fair share. It is a key part of the tax office charter.

And at a time when the government is aggressively (and properly) seeking small business and individuals to comply with tax laws – to pay their fair share – the gaping hole left open for multi-nationals such as Netflix to legally romp out of the country with pockets full of un-taxed Australian revenue needs to be addressed, quick smart.

The simple, final question

If Netflix can do it, why don’t you have the right to send your un-taxed income to a mailbox company in Holland and pay just 7.6 percent tax?

It’s not a bad one for all politicians – and the tax office.

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