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Infosys on Tuesday has signed an Advance Pricing Agreement (APA) with the US Internal Revenue Service (IRS), reducing its tax burden in the US by one percentage point till 2021 and giving clarity on tax obligations in the country. 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 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 firm 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.