ITAT Deletes Rs. 444.93 Cr TP Adjustment Against Netflix India, Rejects DAPE Claim

An Indian entity providing marketing, logistics and infrastructure support to its overseas affiliate challenged tax adjustments for Assessment Year 2021-22 before the Income Tax Appellate Tribunal. The tax department argued that the Indian company’s activities went beyond routine support and effectively created a Dependent Agent Permanent Establishment (DAPE) for the foreign enterprise in India.

The authorities also claimed that content delivery network (CDN) servers placed at internet service provider facilities in India constituted a Fixed Place Permanent Establishment, allowing the Revenue to attribute a portion of the foreign company’s global subscription income to India under the India-Netherlands Double Taxation Avoidance Agreement.

Central Issue: Whether marketing support activities and the presence of CDN servers in India create a permanent establishment for the foreign entity, and if so, how much profit can be attributed to such a PE under the applicable tax treaty.

Tribunal Decided: The Income Tax Appellate Tribunal (ITAT) partly allowed the appeal. It held that CDN servers located at ISP premises do not create a Fixed Place PE, as they merely facilitate efficient content delivery and remain under the operational control of the service providers rather than the foreign enterprise.

On the question of a Dependent Agent PE, the Tribunal observed that the Indian entity did not have authority to conclude contracts on behalf of the foreign company. It further clarified that even if a PE were assumed, no additional profits could be attributed where the Indian entity had already been compensated at arm’s length for the services performed. The Tribunal also rejected the argument that routine marketing expenditure automatically creates marketing intangibles for the foreign principal without clear supporting evidence.

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