IT major Infosys today said it has signed an Advance Pricing Agreement (APA) with the US revenue department, which will result in reversal of tax provisions of about $225 million.
The reversal of the tax provisions will have a positive impact on its consolidated basic earnings per share (EPS) for the December, 2017 quarter by approximately $0.10, Infosys said in a statement.
"In accordance with the APA, the company expects to reverse tax provisions of approximately $225 million made in previous periods which are no longer required (both under International Financial Reporting Standards and Indian Accounting Standards)," it added.
Under the APA, Infosys and the US Internal Revenue Service have agreed on the methodology to allocate revenues and compute the taxable income of the company's US operations, it said adding that the agreement covers financial years from 2011 to 2021.
The preliminary discussions with the IRS on the APA were initiated by Infosys in 2015, followed by multiple rounds of discussions.
"We are glad that the APA has been executed in one of our key markets. The APA provides greater predictability of our taxes and minimises uncertainties," Infosys CFO M D Ranganath said.
Infosys said it expects its overall effective tax rate to be lower by about 100 basis points for future periods covered under the APA.
"Further, in line with the APA, the company expects to payout about $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," it said.
This amount is expected to be paid over the next few quarters, it added.
The APA will enhance predictability of the company's tax obligations in respect of its US operations, Infosys said.
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