Indian IT major Infosys said that it has successfully signed an Advance Pricing Agreement (IPA) with the U.S. Internal Revenue Service (IRS). The preliminary discussions with the IRS on the APA were initiated by the company in 2015, followed by multiple rounds of discussions. Under the APA, the Infosys and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the company’s U.S. operations. This agreement covers financial years from 2011 to 2021. The APA will enhance predictability of the company’s tax obligations in respect of its U.S. operations, said Infosys.
In accordance with the APA, the Infosys expects to reverse tax provisions of approximately US$ 225 million made in previous periods which are no longer required (both under International Financial Reporting Standards and Indian Accounting Standards). Further, in line with the APA, the company expects to payout approximately US$ 233 million due to the difference between the taxes payable for prior periods as per the APA and the actual taxes paid for such periods. This amount is expected to be paid over the next few quarters.
The reversal of the tax provisions of approximately US$ 225 million will have a positive impact on the consolidated Basic EPS for the quarter ending December 31, 2017 by approximately US$ 0.10. Further, on account of the APA methodology, the Company expects its overall effective tax rate to be lower by about 100 basis points for future periods covered under the APA, said tech firm.
“We are glad that the APA has been executed in one of our key markets. The APA provides greater predictability of our taxes and minimizes uncertainties,” stated M. D. Ranganath, CFO, Infosys.