Goldman Sachs

Donald Trump’s tax changes to blow a US$5 billion hole in Goldman Sachs’ profits

PUBLISHED : Friday, 29 December, 2017, 11:43pm
UPDATED : Saturday, 30 December, 2017, 5:55am

Goldman Sachs has said Donald Trump’s radical US tax changes will knock about US$5 billion ($39 billion) off its profits this year.

The investment bank said most of the cost would come from Trump’s “repatriation tax” designed to encourage multinationals to bring back the trillions of dollars they hold overseas to avoid tax.

Goldman, which made profits of US$7.4bn last year, said: “The enactment of the tax legislation will result in a reduction of around US$5bn in the firm’s earnings for the fourth quarter and year ending 31 December 2017, around two-thirds of which is due to the repatriation tax.

“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.”

The bank made the statement in a filing with the Securities and Exchange Commission (SEC) on Friday.

Congress last week approved the biggest tax overhaul in 30 years, which includes big tax cuts for companies and wealthy people.

The reduction in corporation tax – from 35 per cent to 21 per cent – is designed in part to encourage multinational to repatriate cash from overseas.

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US companies are estimated, by Citigroup, to hold US$2.5 trillion of capital overseas. Companies had previously explained that they had a duty to shareholders to keep the money abroad rather than bring it back to the US and pay large tax bills.

The tax overhaul will allow Apple to bring back its US$252.3 billion foreign cash mountain without a major tax hit.

The huge amount of untaxed profits Apple holds overseas has become a major political football and a headache for the world’s most valuable company.

Drug maker Amgen said last week that it expects to pay US$6-6.5 billion repatriating its cash to the US.

Goldman said the rest of the US$5 billion knock to its profits would come from the cost of implementation of the territorial tax system, and tax changes that will make it harder for companies to deduct past losses from future tax bills.

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Barclays said earlier this week the change to “deferred tax assets” and would cost it about £1bn.

The tax changes were overseen by treasury secretary Steven Mnuchin, who declared the bill to be “great for hardworking workers”. Mnuchin worked at Goldman for 17 years until 2002.