The huge tax overhaul in the United States is expected to boost business by lowering taxes. But many big international companies are warning that the changes will mean billions of dollars in one-off losses.
Major European banks Barclays (BCS), Credit Suisse (CS) and UBS (UBS), plus oil giant Shell (RDSA), have indicated the new tax rules could cost them between $1 billion to $3 billion each.
Longer term, a lower U.S. corporate tax rate — down to 21% from 35% — is expected to be positive for business. But in the short-term, these companies won’t be able to use all the tax credits they had saved up from when they made losses in the past. They are being forced to write-down the value of these tax credits. American companies could face the same issue.
These one-time charges could seriously eat into corporate profits when companies begin releasing their 2017 full-year earnings.
For example, Credit Suisse reported profits of about 1.1 billion Swiss francs ($1.1 billion) in the first three quarter of this year, but that could be erased by the new tax-related write-down of 2.3 billion Swiss francs.
The Swiss bank said it’s focusing on the bright side.
“Credit Suisse anticipates that the reforms will have a positive impact on the U.S. economy and our activity levels in the U.S.,” it said in a statement on the day President Trump signed the tax bill into law.
Shell echoed that sentiment this week, saying it “expects the potential economic impact of the recently enacted U.S. tax reform legislation to be favorable.”
Barclays was less optimistic, noting that new rules in the tax package could “significantly reduce the benefit” of having a 21% tax rate starting in January. Barclays is particularly concerned about new U.S. rules designed to stop companies from shifting money to low-tax locations.
Lesser known companies have also been coming forward to report similar one-off charges. The Finnish industrial giant Vaisala reported on Wednesday that the tax reform would lead to a one-time 2.4 billion ($2.9 billion) write-down in 2017.
But not everyone is bracing for red ink. Daimler (DMLRY), the German firm that makes Mercedes-Benz cars, said the tax change will give it an immediate one-off boost worth 1.7 billion ($2 billion) in 2017. Unlike the others, it doesn’t have such a large share of tax credits on its books.
Meanwhile, accountants around the world are still working furiously to figure out how their American businesses will be affected by the biggest U.S. tax overhaul in more than 30 years.
All the firms said they were still crunching the numbers.
“The analysis of the actual impact is not yet complete,” said Shell in a written statement.