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Assessing the wider impact of Portugal’s 'Netflix tax’

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The pandemic has led to increased consumption of digital services

Diogo Ortigão Ramos, Tiago Gonçalves Marques and Diogo Gonçalves Dinis of Cuatrecasas consider the key elements of the Portuguese ‘Netflix tax’ and discuss whether this would pave way for the introduction of a digital services tax.

New tax challenges arise daily as a result of emerging and continuous innovation, new technology, and business models that test the boundaries of the tax status quo. Countries and organisations are trying to be at the forefront of tax innovation by researching and developing mechanisms to address these challenges. Portugal has recently given its first contribution, although small, to this pursuit: a Portuguese ‘Netflix tax’, a new levy that aims to support Portuguese cinema and audiovisual production with its proceeds.

In this article, the main effects of this new levy are summarised and there is also discussion on how this could be a step towards the introduction of a digital services tax (DST) in Portugal.

The Portuguese ‘Netflix tax’: An overview

On November 19, Law 74/2020 was published, transposing Directive (EU) 2018/1808 of November 14, amending local legislation on the provision of audiovisual media services (Services Directive of Audiovisual Media), to adapt it to the changes in market realities. It will come into force on February 17 2021.

Among the changes to the cinema and audiovisual media services sector, two relevant amendments are highlighted:

a)   An ‘advertising tax’: The exhibition levy, which is due on Portuguese commercial advertising broadcasts on several audiovisual platforms such as cinemas and television, is now extended to audiovisual commercial communication included in audiovisual on-demand services or video-sharing platform services (such as YouTube and Amazon Prime Video), even if under the jurisdiction of another member state, at a standard rate of 4%. 

b)   A ‘Netflix tax’: Audiovisual on-demand service operators (such as Netflix and HBO) will be subject to an annual levy corresponding to 1% of their ‘relevant income’ in Portugal.

Who is subject to these levies?

While the advertising tax, which is already in force for traditional market operators, is extended to audiovisual on-demand services and video-sharing platform services, the Netflix tax is only levied on audiovisual on-demand service operators.

An ‘audiovisual on-demand operator’ is considered as any natural or legal person in charge of selecting and organising the content of audiovisual services on demand, in the form of a catalogue, and making it available in national territory. These operators will have to pay both levies. Video-sharing platform operators are considered as any natural or legal person who provides a video-sharing platform service.

Therefore, platforms operating ‘video-on-demand’ and streaming services will be subject to both the advertising tax and the Netflix tax, thus signalling the targets of these new levies.

What is the basis for these taxes?

The advertising tax is calculated over the price paid for the commercial advertising broadcasts and is a burden of the advertiser.

The Netflix tax will be levied over the targeted operator’s ‘relevant income’; i.e. audiovisual commercial communications for television operators and operators of audiovisual on-demand services, or subscriptions for conditional access television operators, as well as other types of income and operators.

However, when it is not possible to assess the value of the service operators’ audiovisual on-demand subscriptions’ ‘relevant income’, the levy’s annual amount is assumed to be €1 million ($1.21 million).

As a result of the inherent difficulties of assessing ‘relevant income’, the situations in which ‘relevant income’ cannot be determined were clarified:

a)   Income does not have to be reported in Portugal, but this is the case in other member states, and the elements made available in those countries do not discriminate revenue by geographical origin, which means it is impossible to determine the share of income obtained in Portugal. 

b)   Non-disclosure of the legal documents required to enable the correct assessment of ‘relevant income’.

Purpose of these levies

As explained above, the purpose of the Netflix tax is to support cinema and audiovisual production, as its proceeds are considered revenue of the Portuguese Institute of Cinema and Audiovisual (ICP), and they will be earmarked to support those productions.

Moreover, audiovisual on-demand service operators active in Portugal are obliged to make annual investments in developing, producing and promoting European works and works in the Portuguese language, as well as independent production works in a given proportion of their ‘relevant income’ in Portugal, capped at €4 million. As explained, when the ‘relevant income’ cannot be determined, the annual investment amount is considered to be €4 million.

The Portuguese ‘Netflix tax’: A draft DST?

The digitalisation and dematerialisation of the economy remains as one of the key tax challenges looming over international taxation. This is a particular concern within the EU and the OECD within the scope of the Inclusive Framework on BEPS, following up on the 2015 BEPS’ Action 1 report and on the more recent Pillar One endeavour. However, there is still much uncertainty because of the lack of consensus between countries.

The international taxation system does not properly address the digitalisation and dematerialisation of the economy, as companies generally pay corporate income tax where production occurs rather than where true value is created, which regularly resides where consumers and, for the digital sector, where users, are located. This results in asymmetries within the international taxation system.

Due to the lack of a consensus-based and standardised solution to this problem, several countries are taking unilateral measures to tax the digital economy.

Several countries have already announced or implemented a DST, which is essentially a tax over the selected gross revenue streams of large digital companies based on the effective locations of users/consumers. For example, in October 2020, Spain approved a tax on certain digital services.

In Portugal, the question is whether the Netflix tax is an initial step towards something bigger. Is Portugal preparing to unilaterally introduce a fully-fledged DST levied on large digital companies?

Although the Portuguese Netflix tax measures have a targeted and narrow aim, it is likely that Portugal intends to expand it to other dimensions. That said, it is doubtful that Portugal will go rogue on the EU and implement such a mechanism before a consensus-based and standardised solution has been found among the EU member states.

The COVID-19 pandemic may have encouraged this discussion, as the consumption of these types of digital services increased substantially in 2020, and they may be an interesting source of revenue to fight the economic crisis caused by the COVID-19 pandemic.

As it stands, the Portuguese Netflix tax cannot be considered as a fully-fledged DST per se; however, Portugal will perhaps widen the base of this mechanism to tackle more than only subscription-based players.

Diogo Ortigão Ramos



Tiago Gonçalves Marques


Diogo Gonçalves Dinis


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