Shell, Barclays Detail Billions in Charges Related to U.S. Tax Changes
December 27 2017 - 6:59AM
Dow Jones News
By Sarah Kent and Max Colchester
LONDON--Royal Dutch Shell PLC and Barclays Bank PLC said they
would take large charges attributable to the U.S. tax
overhaul--joining a parade of global firms in recent days
disclosing how American tax-bill changes will affect their bottom
line.
Shell estimated its U.S. tax-related charge in the fourth
quarter could amount to between $2 billion and $2.5 billion,
stemming from a reduction in the value of its deferred tax assets.
Companies can log such assets during unprofitable periods and can
use them to offset future tax payments. Those assets--essentially
credits toward future tax payments in the U.S.--are worth less
after the tax overhaul sharply reduced headline corporate tax from
35% to 21%.
Barclays, meanwhile, said it would take a noncash charge of GBP1
billion ($1.3 billion) in the fourth quarter, citing similar
changes in the value of its deferred tax assets and liabilities.
The charge, combined with other restructuring costs, is expected to
push the U.K. bank to a net loss for the year. Barclays also said
its capital ratio, a key measure of balance-sheet strength, will
fall by 0.2 percentage point--though that would likely be too small
to worry investors.
Shares in Shell and Barclays were trading slightly higher in
midmorning trading in London.
Both companies said that despite the big paper losses, they
viewed the drop in U.S. corporate taxes as a positive in the longer
run. Barclays, though, said that it was still reviewing the effect
of other provisions in the tax overhaul, including those related to
so-called base erosion. Foreign firms have complained the
base-erosion measures--which drafters of the overhaul say should
discourage tax avoidance by companies seeking to move profits to
lower-tax jurisdictions--could also affect many legitimate tax
arrangements by multinationals, and add to their overall tax
burden.
"It is possible that any impact of [the base erosion measures]
could significantly reduce the benefit of the reduction in the
statutory U.S. federal rate," Barclays said. The bank said that
because of uncertainty over how these measures would be applied, it
wasn't possible to "reliably estimate" how they would affect the
bank.
On Friday, Credit Suisse Group AG said it would write off $2.3
billion in the fourth quarter--as it also decreased the value of
tax-deferred assets dating back to financial crisis-era losses.
The tax rewrite, signed by President Donald Trump last week,
brings lots of benefits for U.S. companies, including the sharp
drop in the U.S. headline corporate tax rates. Many foreign firms
will also benefit from that drop. But other benefits are less
clear, and in some cases the reworked U.S. tax code could hurt
non-American firms.
Credit Suisse, for instance, said that a new U.S. tax on
services and interest payments to affiliated companies outside the
U.S. could push its tax liability up. The bank said the U.S. tax
overhaul, in the longer term, would boost U.S. economic activity
and its business there.
In a flurry of disclosures starting Friday, executives in the
U.S. and overseas have tried to give investors a first blush of
what to expect. Last week, AT&T Inc. promised $1,000 bonuses
for some 200,000 workers, thanks to the tax cut. Boeing Co. said
earlier this week expected savings from the tax overhaul would
trigger about $300 million in new investment.
For foreign firms, the biggest impact so far has been
reassessments made on the value of deferred tax credits and
liabilities.
German luxury car maker BMW AG said last week that it expects
deferred tax liability adjustments to boost its 2017 profit by a
range of between EUR950 million and EUR1.55 billion, ($1.13 billion
to $1.84 billion), according to initial calculations. Rival Daimler
AG said the expected change in the value of its deferred tax
liabilities would result in a roughly EUR1.7 billion boost to its
2017 net income.
DIC Corp., a Japanese ink maker, said on Christmas Day it would
downgrade its net profit forecast for the year by Yen6 billion ($53
million), because of the smaller value of its deferred tax
assets.
Peter Landers in Tokyo contributed to this article.
Write to Sarah Kent at sarah.kent@wsj.com and Max Colchester at
max.colchester@wsj.com
(END) Dow Jones Newswires
December 27, 2017 06:44 ET (11:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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