Goldman Sachs expects its profits to suffer a cut of $5 billion in the fourth quarter as a result of the tax overhaul which targets earnings held overseas.
The company, which is the first bank to release details on how changes in the tax code will affect them, said in a filing Friday that around two-thirds of the hit will come from the repatriation tax. The remainder includes the “effects of the implementation of the territorial tax system and the remeasurement of U.S. deferred tax assets at lower enacted corporate tax rates,” according to Goldman.
The new tax overhaul imposes a 15.5 percent rate on overseas earnings held in cash or other liquid assets and an 8 percent rate for earnings held in harder-to-sell assets.
The bank also accelerated the delivery of previously granted stock awards to many of its top executives to lower its taxable profit subject to this year’s higher rates, Bloomberg reports.
According to ABC News, U.S. companies had found ways to legally park money overseas and avoid the higher U.S. corporate tax. Changes in the law are expected to prompt many companies to return money, about $2.5 trillion, to the United States.
However, after taking a hit on repatriated earnings, Goldman and other banks, will operate in a much more favorable tax environment. The tax bill, which President Donald Trump signed into law last week, will spread benefits across numerous industries, including banks. Analysts at Goldman Sachs have estimated that the tax measure will boost big-bank earnings per share by 13 percent next year.
However, economists believe that the overall effect on the economy will not be favorable due to the cuts to the U.S. corporate tax rate. Historically, repatriated profits have not had a broad effect on the U.S.
Goldman Sachs Group Inc. did not say how changes in the tax law would affect its decisions on investments going forward.