Infosys in pricing pact with US IRS, to get $225 mn tax reversal

Agreement covers 2011-2021 period, will enhance predictability of Infy's tax obligations in respect of US operations

Infosys on Wednesday said it has signed an Advance Pricing Agreement (APA) with the US Internal Revenue Service (IRS) that will reduce its tax burden in the US by one percentage point till 2021 and give clarity on tax obligations in the country.

For the quarter ending December, Infosys will benefit from a tax reversal of $225 million it had paid in the past that will benefit positively by $0.10 in the earnings per share (EPS), the firm said in a statement.

Under the APA, Infosys and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the company’s US operations. This agreement covers financial years from 2011 to 2021. The APA will enhance the predictability of the Company’s tax obligations in respect of its US operations, it said.

Infosys also has to pay $233 million in taxes, which is the difference between the taxes payable for prior periods as per the APA and the actual taxes. This has to be paid over the next few months.

The reversal of the tax provisions of approximately $225 million will have a positive impact on the consolidated Basic EPS for the quarter ending December 31, 2017, by approximately $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.

“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,” M D Ranganath, chief financial officer at Infosys said in the statement.