WASHINGTON: Goldman Sachs Group Inc said on Friday it would take a $5 billion earnings hit in the fourth quarter for the new US tax law, becoming the first major US bank to detail the law’s one-time impact on corporate profits held overseas.
Set to take effect on Monday, the sweeping tax code changes enacted a week ago by President Donald Trump were expected to mean short-term pain, but long-term gain for US-based corporations, like Goldman, that do business worldwide.
Like many such companies, Goldman has stored away billions of dollars in profits abroad.
It did so under a law that lets multinationals avoid the present 35-per cent, US corporate tax rate as long as those profits did not enter the United States.
The new law encourages companies to repatriate those earnings and slaps a mandatory tax on them of 15.5 per cent on cash and liquid assets, or 8 per cent on illiquid assets, regardless of whether the earnings come home or not.
Scores of large companies, including other big banks such as Citigroup and JPMorgan Chase & Co, have socked away an estimated $2.8 trillion overseas in recent years.
The one-time tax on those earnings is expected to raise $339 billion in federal revenues over the coming decade, according to the Joint Committee on Taxation (JCT), a nonpartisan research arm of the US Congress.
That will hurt multinationals for a while, but they will have eight years to pay the taxes due.
Some other tax breaks for banks will be eliminated or narrowed, under the new law, ranging from limits on deducting interest to curbs on deducting premiums paid to the Federal Deposit Insurance Corp.
Some US financial companies have disclosed hits related to deferred tax assets from losses they suffered during the 2007-2009 financial crisis.
Citigroup has said earlier this week it expects as much as a $20 billion charge to earnings for this, while Bank of America has detailed a $3 billion charge to fourth-quarter profit. — AFP