Netflix a serial tax avoider

Streaming video giant Netflix paid just $553,705 in tax in Australia in 2020, although the amount paid was up on the previous two years ($485,371 in 2019 and $341,793 paid in 2018).

The small amount of tax paid comes despite estimates that Netflix generated in excess of $1 billion in revenue from its Australian subscribers at the height of the pandemic lockdowns.

Netflix avoids paying tax in Australia by using a company structure that sees a Netherlands-based unit recognising Australian revenue, with its Australian subscribers being billed by that entity and its Australian unit paying the Netherlands unit a fee for its collection services.

From The AFR:

“We comply with all Australian and international tax law. In addition, we continue to invest aggressively in Australian content,” a Netflix spokesman said.

The Financial Review is not suggesting Netflix is doing anything against the law. However, it does call into question how effective the Australian government’s tax reforms have been in getting digital companies like Netflix, Google and Facebook to recognise the money they earn from Australian consumers and businesses in Australia.

Back in 2016, a 32-year veteran industry insider turned whistleblower, George Rozvany, claimed that multinational tax avoidance was “out of control” and costing the federal budget billions of dollars in lost tax revenue every year.

Since then, the Coalition has implemented two key pieces of legislation aimed at reducing multinational tax avoidance:

  1. The Multinational Anti-Avoidance Legislation (MAAL), which came into effect on 1 January 1 2016; and
  2. The Diverted Profits Tax (DPT), which came into effect on 1 July 2017.

Clearly, more work is needed to be done by the Australian Taxation Office (ATO) and at the global inter-governmental level to address this type of egregious multinational tax avoidance.

Unconventional Economist
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  1. Strewth! Our household pays more Australian income tax than Netflix does! Transfer pricing gone mad! Digital profits tax please – then reduce PAYG tax brackets please…

  2. It’s a dangerous game wishing for entities to be taxed where the customers are. At the moment, the Australian taxpayers is minting it with iron ore sales. If China, for instance, brought in a tax rule that says China will tax the profits on iron ore where a Chinese entity is the end buyer, then we are screwed.

    The MAAL and the DPT have actually been pretty good in getting more cash from the likes of Google.

    • Slight difference in that we sell the ore on the boat in Port Headland. They can come and get in when they have paid us.

      Netflix the consumption happens here and the money is sourced here. Different kettles of fish.

      • Not really. Almost none of the content is Australian based so it comes from offshore and consumed here.

        If a Chinese steel mill buys BHP iron ore, for them it comes from offshore and is consumed locally.

        • to back up jason re company “resident” in country should be taxed on worldwide income. it is in our tax act also

          If you are an Australian resident, your assessable income includes the * ordinary income you * derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

          whereas if non resident taxed on australian income only (not worldwide income)

          If you are a foreign resident, your assessable income includes:

          (a) the * ordinary income you * derived directly or indirectly from all * Australian sources during the income year; and

          (b) other * ordinary income that a provision includes in your assessable income for the income year on some basis other than having an * Australian source.
          (ppl appear to be arguing this and while I cannot quite turn my mind to what this exactly applies to for a non resident it will have very limited scope)

          you will find that netflix “derives” its income offshore and as a non resident company (for aus tax purposes) it will not be assessable income here (logically this is how it should work). subsection (b) a bit strange but thought would not make netflix inxome taxable in aus. no doubt the contract has an overseas “source” as presumably that is where contracts are based. it is online contracts so not sure how they arrange offer and acceptance but have no doubt the contracts would have overseas source and thus fall outside australian income tax net (obviously gst applicable in aus i would think as product consumed in aus)

          very quick thoughts may be wrong but if we are going to argue it lets be technical rather than express moral outrage

    • hi jason
      are you sure about that re australia minting tax from china iron ore sales. i thought bhp and perhaps rio put in singapore “marketing” companies in the group and perhaps?? there was questionable?? transfer pricing going on re iron ore. then ato had a go at bhp for cfc from memory. that was years ago. not sure where it ever landed.
      never quite understood purpose of maal and dpt but then again did not do much research. always thought that if transfer pricing at market values not work, then why on earth would maal and dpt work. as i said though i not research this area much so i may be misinformed. i always thoght maal and dpt put in by govt to show “they were doing something” when it was just a marketing exercise from the govt and the legislation would be useless (transfer pricing should work). anyway if netflix sells from overseas company to australian consumder then agree the overseas company should be taxed on it assuming everything based on market value principles
      leith i think maal and dpt are probably useless pieces of maketing legislation to show govt doing something. if transfer pricing not working (which i am well aware then it is not ie what is the market price for something???? not easy, if i knew i would be rich and so would you) then perhaps we should stop dealing with international companies. i know this is a ridiculous comment because it is so obvious but when we made our land the second highest in the world, and then wages had to go sky high to allow workers to obtain shelter, then nobody wanted our exports as they would be most expensive in world. then guess what we have to buy everything from overseas and transfer pricing rips us off espevcially where the product being sold is monopolistic ie rights, intangibles, such as that embedded in pharmaceuticals. that is why we should have had a land tax to keep land prices down, wages down because shelter is cheaper, exports up, and thus transfer pricing from overseas against australia would be greatly diminished

    • Obviously not good enough as they paid too much.
      For a business that comes from the beacon of democracy and free world the tax paid is an insult. If the business was not US’, it should’ve been slapped with export tariff

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