Infosys to reverse $225 million of tax provisions on pact with US IRS

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Bengaluru | Published: January 10, 2018 5:16:41 AM

India’s second-largest IT services exporter Infosys will witness a reversal in tax provisions to the tune of $225 million following the conclusion of advance pricing agreement (APA) with US Internal Revenue Service (IRS).

infosys, infosys tax provision pact, advance pricing agreement, US Internal Revenue ServiceThis is expected to bring down the company’s effective tax rate by around 100 basis points. (Reuters)

India’s second-largest IT services exporter Infosys will witness a reversal in tax provisions to the tune of $225 million following the conclusion of advance pricing agreement (APA) with US Internal Revenue Service (IRS). This is expected to bring down the company’s effective tax rate by around 100 basis points. However, Infosys expects to payout approximately $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. This APA covers financial years from 2011 to 2021. The IT major said this agreement will also have a positive impact on the consolidated basic EPS for the quarter ending December 31, 2017 by approximately $0.10. Infosys CFO M D Ranganath said, “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.”

According to Infosys, 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 company and the IRS have agreed on the methodology to allocate revenues and compute the taxable income of the company’s US operations. The APA will enhance predictability of the company’s tax obligations in respect of its US operations, it said.

The US is the largest revenue generator for Infosys and accounted for 60.6% of its revenues for the second quarter of FY18. The net profit of the company stood at $578 million for the second quarter of FY18 while the revenue was $2,728 million. The basis EPS of the company was $0.25 during this period. Infosys has provided a revenue guidance in the range of 5.5-6.5% for FY18 in constant currency, while the operating margin guidance remains at 23-25%.

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