Profit repatriation tax and other tax changes are costing Goldman Sachs $5 billion. It has stated in a Form 8-K filing to the United States Securities and Exchange Commission. The company asserts that the new tax legislation will result in an approximate $5 billion reduction in the company’s earnings “for the fourth quarter and year ending December 31, 2017.”
It states that around two-thirds of this are due to the repatriation tax. The rest is due to the effects of the territorial tax system and reduced corporate income tax rates. The reduction in corporate tax also results in a “remeasurement of US deferred tax assets.”
What is Profit Repatriation Tax?
To state it simply, some companies send profits overseas to avoid paying the high 35% corporate tax. Instead, they pay the lower rate of tax that applies in those countries. It has been estimated that such capital stashes in foreign countries could reach $22.5 trillion. The new tax bill allows profit repatriation whereby these companies can repatriate their money back to the US to face just 15.5% tax on liquid assets: e.g. stocks and bonds. Profits made on assets that are more difficult to sell (e.g. real estate) would be taxed only at 8%.
In effect, this repatriation rax is rewarding firms that stash their profits overseas. Rather than investing profits in the US in job creation and development, they have been keeping it in overseas accounts. They can now repatriate that cash to the US at a lower rate of tax. A significantly lower rate of corporate tax than that paid by firms who kept their cash in the USA!
President Trump’s Tax Cuts and Jobs Act
President Trump’s The Company has claimed that Donald Trump’s tax changes will reduce its earnings by billions of dollars.Tax Cuts and Jobs Act brings corporate tax rates from 35% down to 21%. However, repatriation allows companies to bring profits untaxed in the US back to face lower corporate tax rates. Many firms that have retained and invested their profits in the US believe this to be unfair. So how does this affect Goldman Sachs?
The repatriation part means an average 11% tax rate to Goldman Sachs’ $32.6 billion foreign earnings made by the end of 2016. This amounts to around $3.59 billion, the remainder of the $5 billion loss being due to other tax changes. Ultimately, it is claimed, companies such as Goldman Sachs will benefit from the new tax changes. However, many do not see how this could be. Time will tell whether or not Donald Trump’s new tax changes will benefit US business in general.