Netflix (NFLX, Financial) is under investigation by the governments of France and the Netherlands for alleged tax fraud and unreported labor practices. Authorities recently conducted raids on Netflix's offices in Paris and Amsterdam as part of an inquiry that began in November 2022. This collaborative investigation between French and Dutch officials has been ongoing for several months.
A Netflix spokesperson stated that the company is cooperating with the inquiry and emphasized its commitment to complying with tax laws in all countries where it operates. Despite the investigation, initial government inquiries do not necessarily lead to criminal charges or trials.
The current scrutiny traces back to a 2019 examination when French authorities focused on Netflix's tax declarations for 2019, 2020, and 2021. Reports suggest that Netflix's French operations used a Dutch entity to minimize tax liabilities in France, since Netflix’s European headquarters is located in Amsterdam. This setup resulted in paying less than one million euros in corporate taxes for 2019 and 2020, despite having around seven million French subscribers.
In 2021, Netflix restructured its operations in France, leading to significant revenue growth. French government intervention required Netflix to count its French subscribers separately, causing the revenue from its French subsidiary to surge from 47 million euros in 2020 to approximately 1.2 billion euros in 2021. This growth continued into 2022, reaching around 1.3 billion euros, aligning more closely with its subscriber base, which reached 10 million by June 2023.
Netflix's latest financial report for the third quarter indicates strong performance, with the company exceeding Wall Street expectations. Netflix added over five million new subscribers, surpassing analyst forecasts of 4.52 million. The third-quarter sales rose 15% year-over-year, totaling $9.83 billion, with earnings per share reaching $5.40. The global subscriber base at the end of the quarter was approximately 282.7 million.
Most of the new subscriptions emanated from Europe, the Middle East, Africa, and the Asia-Pacific region. However, the company lost some customers in Latin America early in the year. Looking ahead, Netflix expects new subscriber additions in the fourth quarter to surpass the third-quarter numbers, and anticipates revenue growth between 11% and 13% next year, potentially reaching $44 billion, through new memberships and price increases.
