Infosys Q3 Earnings To Get A Boost On Advance Pricing Pact With U.S.

Third quarter earnings of Infosys Ltd. is likely to get a boost as it expects to reverse tax provisions of about $225 million made in previous years after signing an advance pricing agreement with U.S. Internal Revenue Service.

The reversal of the tax provisions will translate into a positive impact of 10 cents on the consolidated earnings per share for the quarter ended December 2017, Infosys in an exchange filing today. An advance pricing agreement is a contract between a taxpayer and a tax authority specifying the pricing method that the taxpayer will apply to its related-company transactions with the U.S. taxation authorities.

The agreement covers transactions of the company's U.S. operations between 2011 and 2021, the filing added.

The company expects overall effective tax rate to be lowered by 100 basis points (1 basis point is one-hundredth of a percentage point) for future periods covered under the pact, Infosys said.

It is likely to payout $233 million to the tax department over the next few quarters, on account of the difference between taxes paid and taxes meant to be paid in prior periods as per APA norms.

Credit Suisse does not expect the APA to have any material impact on the stock price. Third quarter profit will be inflated but “it's just an accounting treatment”, the financial major said in a report today.

The announcement comes a week after Salil Parekh took charge as the managing director and chief executive officer of the country's second-largest software services provider, nearly four months after its former CEO Vishal Sikka stepped down citing “baseless/malicious and increasingly personal attacks” weighing him down.

In the quarter-ended-September, Infosys had cut its revenue guidance to the lowest in a decade to 6.5-7.5 percent growth in U.S. dollar terms and 5.5-6.5 percent growth in constant currency terms.