|WNS (HOLDINGS) LTD filed this Form 6-K on 08/06/2018|
The Government of India, the US or other jurisdictions where we have a presence could enact new tax legislation which would have a material adverse effect on our business, results of operations and financial condition. In addition, our ability to repatriate surplus earnings from our delivery centers in a tax-efficient manner is dependent upon interpretations of local laws, possible changes in such laws and the renegotiation of existing double tax avoidance treaties. Changes to any of these may adversely affect our overall tax rate, or the cost of our services to our clients, which would have a material adverse effect on our business, results of operations and financial condition.
We are subject to transfer pricing and other tax related regulations and any determination that we have failed to comply with them could materially adversely affect our profitability.
Transfer pricing regulations to which we are subject require that any international transaction among our company and its subsidiaries, or the WNS group enterprises, be on arms-length terms. We believe that the international transactions among the WNS group enterprises are on arms-length terms. If, however, the applicable tax authorities determine that the transactions among the WNS group enterprises do not meet arms-length criteria, we may incur increased tax liability, including accrued interest and penalties. This would cause our tax expense to increase, possibly materially, thereby reducing our profitability and cash flows. We have signed an advance pricing agreement with the Government of India providing for the agreement on transfer pricing matters over certain transactions covered thereunder for a period of five years starting from April 2013. We have filed an application for renewal of the advance pricing agreement for another five years starting from April 2018 and will continue to apply the same methodology as set out in the advance pricing agreement pending the renewal of the agreement.
We may be required to pay additional taxes in connection with audits by the tax authorities.
From time to time, we receive orders of assessment from Indian tax authorities assessing additional taxable income on us and/or our subsidiaries in connection with their review of our tax returns. We currently have orders of assessment for fiscal 2004 through fiscal 2014 pending before various appellate authorities. These orders assess additional taxable income that could in the aggregate give rise to an estimated ₹2,885.2 million ($42.1 million based on the exchange rate on June 30, 2018) in additional taxes, including interest of ₹1,123.2 million ($16.4 million based on the exchange rate on June 30, 2018).
These orders of assessment allege that the transfer prices we applied to certain of the international transactions between WNS Global or WNS BCS, each of which is one of our Indian subsidiaries, as the case may be, and our other wholly-owned subsidiaries were not on arms-length terms, disallow a tax holiday benefit claimed by us, deny the set-off of brought forward business losses and unabsorbed depreciation and disallow certain expenses claimed as tax deductible by WNS Global or WNS BCS, as the case may be. As at June 30, 2018 we have provided a tax reserve of ₹806.2 million ($11.8 million based on the exchange rate on June 30, 2018) primarily on account of the Indian tax authorities denying the set off of brought forward business losses and unabsorbed depreciation. We have appealed against these orders of assessment before higher appellate authorities. For more details on these assessments, see Part I Item 5 Operating and Financial Review and ProspectsTax Assessment Orders.
In addition, we currently have orders of assessment pertaining to similar issues that have been decided in our favor by appellate authorities, vacating tax demands of ₹2,933.0 million ($42.8 million based on the exchange rate on June 30, 2018) in additional taxes, including interest of ₹905.8 million ($13.2 million based on the exchange rate on June 30, 2018). The income tax authorities have filed or may file appeals against these orders at higher appellate authorities.
In case of disputes, the Indian tax authorities may require us to deposit with them all or a portion of the disputed amounts pending resolution of the matters on appeal. Any amount paid by us as deposits will be refunded to us with interest if we succeed in our appeals. We have deposited ₹874.4 million ($12.8 million based on the exchange rate on June 30, 2018) of the disputed amount with the tax authorities and may be required to deposit the remaining portion of the disputed amount with the tax authorities pending final resolution of the respective matters.
As at June 30, 2018, corporate tax returns for fiscal years 2015 and thereafter remain subject to examination by tax authorities in India.
After consultation with our Indian tax advisors and based on the facts of these cases, certain legal opinions from counsel, the nature of the tax authorities disallowances and the orders from appellate authorities deciding similar issues in our favor in respect of assessment orders for earlier fiscal years, we believe these orders are unlikely to be sustained at the higher appellate authorities and we intend to vigorously dispute the orders of assessment.