Thursday 18 October 2018

Goldman Sachs to take 5 billion US dollar hit as result of Trump tax reforms

The biggest impact will come as a result of the so-called repatriation tax.

Donald Trump
Donald Trump

By Kalyeena Makortoff, Press Association City Reporter

Goldman Sachs has warned that it is likely to take a 5 billion US dollar (£3.7 billion) hit to earnings as a result of US President Donald Trump’s sweeping tax reforms.

The Wall Street bank said that the biggest impact would come as a result of the repatriation tax which covers earnings from foreign subsidiaries, accounting for around two thirds of the total financial drag.

“The remainder includes the effects of the implementation of the territorial tax system and the remeasurement of US deferred tax assets at lower enacted corporate tax rates”, Goldman said in a Securities and Exchange Commission filing on Friday.

Together, the reforms are expected to affect both fourth-quarter and annual earnings for Goldman Sachs.

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Goldman Sachs London office

However, the bank said that the estimated impact of Mr Trump’s tax reforms could fluctuate – “possibly materially” – if there are changes in the interpretation of the legislation or new guidance is issued.

Goldman Sachs is set to release its fourth-quarter and annual results for the year to December 31 on January 17.

It’s the latest major firm to detail the financial effects of the tax legislation, which has not gone unnoticed overseas.

Both Royal Dutch Shell and Barclays earlier this week warned profits will be affected as they have to recalculate the deferred tax assets built up on their balance sheets.

While it is still assessing the impact, Shell said based on third-quarter earnings the tax reforms will see it take a charge of 2 billion US dollars (£1.5 billion) to 2.5 billion US dollars (£1.9 billion).

Barclays also announced its expected impact from the new tax laws, saying it is set to take a £1 billion charge to its 2017 accounts.

But both firms said they expect to benefit in the long run, with Shell saying the January 1 changes are set to be “favourable” for the group and its US business.

President Trump signed the 1.5 trillion US dollar (£1.1 trillion) tax overhaul into law last Friday, cutting tax rates for businesses and also offering some temporary cuts for some individuals and families.

It includes slashing corporation tax in the US from 35% to 21%.

The US president has said his sweeping reforms will act as an economic rejuvenator and claimed that the steep cuts in the corporate tax rate will invigorate the economy.

Press Association

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