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Netflix Pushes Back Against Tax Evasion Probe in Italy

Streaming giant says it has no physical presence in Italy and shouldn’t be considered a local business

Netflix is pushing back against Italian prosecutors accusing the streaming giant of tax evasion.

Reuters and Bloomberg reported Thursday that Milanese prosecutors have opened a probe into Netflix, believing the company qualifies as a local business — despite not having a physical presence in the country. The distinction is warranted, according to prosecutors, because Netflix uses fiber optic cables and servers based in Italy to reach its subscribers. It’s unclear how much money the Italian prosecutors are seeking from Netflix, and no company executives are under investigation.

Netflix, however, said the tax evasion claims are bogus.

“Netflix has been working closely with the Italian tax authorities. We pay all the taxes due in Italy, and other countries around the world,” a Netflix spokesperson said. “Netflix invests millions of Euros in Italian productions – helping to create jobs and support the local creative community.”

The spokesperson did not share how much Netflix pays in Italian taxes each year.

According to one person familiar with the company’s business abroad, the prosecutors clearly misunderstand how Netflix provides service to more than one million Italian customers. Netflix, according to the person familiar with its international setup, provides local internet service providers with Open Connect Appliances — essentially boxes that house much of the company’s content. The OCAs are updated frequently, and the ISPs then are able to reach the local subscribers without there being a significant lag. This process, according to Netflix, does not meet the threshold for being a local Italian business, however.

Netflix, with more than 150 million global subscribers, is set to report its Q3 financials later this month.