* Signs deal to co-finance seven movies by Italian filmmakers
* Netflix CEO says to open offices, pay tax in Italy
* Netflix has 2 mln subscribers in Italy (Adds background, details)
By Elvira Pollina
ROME, Oct 8 (Reuters) - U.S. streaming service Netflix has struck a deal with Italy's top commercial broadcaster Mediaset to produce films in the country, the two companies said on Tuesday, as they try to grab new viewers in a competitive market.
At an event in Rome to present the accord, the company behind hit shows "The Crown" and "Stranger Things" also announced it would open offices and pay tax in Italy, in a boost to local authorities which have pursued big international tech companies on charges of dodging tax.
The partnership comes amid heightened competition in the crowded European television market which has been squeezed by the growing popularity of on-demand streaming services like Netflix.
The streaming group, in turn, is stepping up strategic tie-ups in Europe to tackle a wave of new rivals, such as Disney and Apple. Last month it signed a deal with France's Canal+ to add Netflix subscriptions to TV bundles.
Under the deal, Netflix and Mediaset, which is controlled by the family of former Italian Prime Minister Silvio Berlusconi, will co-finance seven movies shot in Italy by independent local filmmakers.
The movies will be available worldwide on Netflix from next year. Mediaset will broadcast the Netflix-branded movies on its free-to-air channels in Italy 12 months later.
"Great stories can come from anywhere and be loved everywhere," Netflix CEO Reed Hastings said.
The first five films include "The Divine Ponytail", a biopic on Italian soccer legend Roberto Baggio, "Caught by a wave", a teenage romance set in Sicily and "The last paradise", the real life story of a 1950s farmer caught between social reform ideals and his love for a landowner's daughter.
"Alliances among large broadcasters focusing on original productions are one of the most effective answers to changes in the market," Mediaset head of content Alessandro Salem said.
Netflix has more than 2 million subscribers in Italy and will invest some 200 million euros in the next two years in Italian productions, though it has no plans to open studios in the near future, Reed said.
Netflix entered the Italian market in 2015.
Reed said opening offices in Italy will turn the company into a regular taxpayer in the country.
The move comes amid growing pressure from tax authorities on big tech companies, who they accuse of not paying enough tax.
Italian Economy Minister Roberto Gualtieri on Tuesday called for "profits to be taxed where they are made" and said Rome would implement a tax on some Internet transactions next year.
A source told Reuters last week Italian prosecutors had opened an investigation into alleged tax evasion targeting Netflix following checks by tax authorities. Netflix said it was working with authorities and had paid all taxes due in Italy and other countries. (Editing by Deepa Babington)