Italy to investigate Netflix for failing to file taxes

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Italian prosecutors are investigating Netflix Inc. after the U.S. streaming company failed to file a tax return, according to people familiar with the matter.

The Milan tribunal opened the probe as the prosecutors believe Netflix has enough of a physical presence in Italy -- including fiber optic cables and servers -- to qualify as a local business that should be paying taxes, said the people, who asked not to be named as the investigation is not public.

Italy has been cracking down on multinational businesses to ensure they pay their fair share of tax. Gucci owner Kering SA agreed to pay 1.25 billion euros ($1.37 billion) in May to settle an investigation of the brand’s tax payments from 2011 to 2017. That case has been broadened to focus to individual managers’ pay.

Authorities are also targeting other global companies. Mastercard Inc. said Wednesday it is complying with a mandatory tax audit in Italy after reports of raids in its offices by the Italian financial police. The Netflix tax probe was first reported by Italian newspaper Corriere della Sera.

“Netflix is closely working with Italian tax authorities, we pay all the taxes due in Italy and other countries,” the company said in a statement. “Netflix invests millions of euros in Italian production, thus contributing to creating jobs and sustaining the local creative community.”

It isn’t the first U.S. tech giant to face the scrutiny of Italy’s tax authorities. Inc. and Alphabet Inc.’s Google have settled separate investigations in recent years with payments totaling hundreds of millions of euros.

Netflix is cranking up output of TV shows and films in territories all over the world to give its content a local flavor and capture more viewers. It has reached more than 30 percent of available customers in markets like the U.K., Germany, Finland, Sweden, Denmark and Norway, according to estimates, but has more room to grow in Southern Europe.

The company faces a growing challenge from rival streaming platforms and shocked investors in July when it reported a drop in U.S. customers and slower growth overseas.

A Milan-based spokeswoman for Netflix and a representative for the financial police in Rome declined to comment.

-- Daniele Lepido and Sonia Sirletti (with assistance from Dan Liefgreen), Bloomberg News

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