Netflix Loses Tax Case Appeal at European Union’s Top Court

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By Joe Kirwin

The European Union’s top court has cleared the way for new taxes on cross-border broadcasting services, rejecting an appeal against the move from the world’s largest online television network.

The May 16 ECJ ruling (T-818/16) rejected an appeal by Netflix Inc. and its Dutch subsidiary, Netflix International BV, to overturn a German levy imposed to help fund German-language films and television programs.

Netflix’s appeal to challenge the extension of a German tax to foreign video-on-demand services was considered “inadmissible” by the European court.

Netflix had argued the extended tax contravenes EU audio-visual law “principle of origin” rules that restrict levies broadcast from other countries within the bloc. Netflix services to Germany are broadcast from its Amsterdam-based subsidiary.

The German government argued that the tax on foreign video-on-demand services, which the European Commission supported in a 2016 state aid decision, was necessary to ensure domestic producers, which must charge VAT, are not put at a disadvantage.

The ECJ said that Netflix has “not demonstrated that their position is substantially affected” by the German levy. “They merely submit that they have had to adapt their policy and that they are specifically targeted, in so far as the statement of reasons for the amendment refers expressly to them as a market leading company,” the ECJ noted.

Netflix issued a brief statement saying the decision was “disappointing though not surprising.”

“We will review the full details of the decision when they are made available.”

Impacts for EU Video-on-Demand Services

The ECJ ruling has huge significance for not only Netflix but for all European foreign video-on-demand services and EU cross-border broadcasters. Pending revisions to the EU Audiovisual Media Services (AVMS) Directive would give EU countries expanded rights to impose a tax similar to the one contested by Netflix in Germany.

“From the point of view of the pending legislation this ruling is very important,” European Commission spokeswoman Nathalie Vandystadt told Bloomberg Tax. “The new rules clarify the possibility for member states to impose financial contributions such as levies upon media service providers including those established in a different member state.”

Recognizing the overall impact that the ECJ ruling has including the implications for the new pending legislation, Netflix said “our appeal to the ECJ challenged how the European Commission has interpreted the country-of-origin principle in the AVMS directive. It is important that the country-of-origin principle is upheld so that services like Netflix do not face different regulations in every country in Europe.”

The pending EU legislation to revise the AVMS directive is expected to get final approval by the end of 2018 and is part of the EU push to establish a digital single market.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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