LG Electronics India Ltd moved into focus after the company inked an Advance Pricing Agreement (APA) with the Central Board of Direct Taxes (CBDT), a development that significantly reduces its long-pending tax exposure.
Following the inking of the agreement, shares of LG Electronics India advanced 1.07% to Rs 1,484.90, reflecting positive investor sentiment around improved tax certainty and balance-sheet clarity.
The APA signing has resulted in a major clean-up of the company’s contingent liabilities. As per the disclosure, contingent liabilities of Rs 172.43 crore related to direct taxes will become Nil. In addition, the contingency amount of Rs 315.30 crore related to royalty payments to LG Electronics Inc., Korea (Promoter) will also become Nil. These changes materially strengthen the company’s financial position and remove key overhangs linked to transfer pricing disputes.
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Under the agreement, the company will incur net tax expense of Rs 17.71 crore (excluding applicable interest, which will be computed as per the payment date). Further, LG Electronics India will be required to make net payment of Rs 3.85 crore to LG Electronics Inc. under the secondary adjustment provisions in compliance with India’s transfer pricing regulations.
The APA application was originally filed on March 29, 2018, with the Indian tax authorities for a nine-year period from April 1, 2014 to March 31, 2023. The successful conclusion of the agreement provides long-term certainty on pricing of international transactions and reduces the risk of future tax litigation.
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