Goldman predicts $5bn hit to quarterly earnings from tax law

Bank gets more than 40 per cent of its revenue outside the US

Goldman Sachs Group headquarters in New York. Photograph: Victor J Blue/Bloomberg

Goldman Sachs Group headquarters in New York. Photograph: Victor J Blue/Bloomberg

 

Goldman Sachs Group said on Friday it expects fourth-quarter earnings to decrease by about $5 billion due to the new US tax law signed by President Donald Trump last week.

Around two-thirds of the $5 billion decrease is due to repatriation tax, Goldman said in a statement with the US Securities and Exchange Commission.

Congress last week approved a US tax overhaul, the biggest in 30 years, which includes steep tax cuts for corporations and wealthy taxpayers.

The new law significantly lowers the income tax rate for US companies - to 21 per cent from 35 per cent - allowing them to repatriate cash from overseas, and modifies numerous deductions, among other changes.

The old tax regime allowed companies to defer US taxes until they brought back earnings held abroad. Under the new law, US companies’ overseas income held as cash would be subject to a 15.5 per cent rate, while non-cash holdings would face an 8 per cent rate. Companies can make the payments in eight annual installments.

Goldman Sachs, which gets more than 40 per cent of its revenue outside the US, had $31.2 billion in earnings reinvested abroad as of the end of 2016, according to a regulatory filing.

However, the impact of the tax legislation may differ from the estimate, according to the bank.

The tax overhaul will allow Apple to bring back its $252.3 billion foreign cash pile without a major tax hit - a long-standing company goal.

Drugmaker Amgen last Friday also said it expects to incur tax expenses of $6 billion to $6.5 billion over time as it repatriates cash it has accumulated around the world because of the new law.

- Reuters