Goldman warns of $5bn earnings hit

The one-time tax on those earnings is expected to raise $339 billion in US federal revenues over the coming decade.

Goldman Sachs Group Inc said on Friday it would take a $ 5 billion earnings hit in the fourth quarter for the new US tax law, becoming the first major US bank to detail the law’s one-time impact on corporate profits held overseas.

Set to take effect on Monday, the sweeping tax code changes enacted a week ago by President Donald Trump were expected to mean short-term pain, but long-term gain for US-based corporations, like Goldman, that do business worldwide.

Like many such companies, Goldman has stored away billions of dollars in profits abroad. It did so under a law that lets multinationals avoid the present 35%, US corporate tax rate as long as those profits did not enter the United States. The new law encourages companies to repatriate those earnings and slaps a mandatory tax on them of 15.5%on cash and liquid assets, or 8% on illiquid assets, regardless of whether the earnings come home or not. The one-time tax on those earnings is expected to raise $339 billion in federal revenues over the coming decade, according to the Joint Committee on Taxation, a nonpartisan research arm of the US Congress.

That will hurt multinationals for a while, but they will have eight years to pay the taxes due. Some other tax breaks for banks will be eliminated or narrowed, under the new law, ranging from limits on deducting interest to curbs on deducting premiums paid to the Federal Deposit Insurance Corp. Citigroup has said it expects as much as a $20 billion charge to earnings for this, while Bank of America has detailed a $ 3 billion charge to fourth-quarter profit.

But these negatives should be more than offset in the long run by other changes under the law, analysts said. Foremost among these profit- enhancing changes will be a deep cut in the overall US corporate income tax rate to 21% from 35%. That will cut US corporations’ federal tax bills by more than $ 1.3 trillion over the next decade, based on JCT research. The new law will also shift US corporate taxation to a “territorial” system. Under the present, “worldwide” system, Washington taxes active foreign profits, if they are repatriated, at the same rate as domestic profits. Under the new territorial system, domestic profits will still be taxed, but profits earned abroad by USbased multinationals, within some limits, will no longer be taxed. This was expected to reduce federal tax revenues by $224 billion over a decade, the JCT estimates. While the strategic petroleum sector, including oil and gas, continues to remain outside the new GST indirect tax regime that replaced a 70-yearold system, the industry did manage in 2017 to switch over to a new exploration regime that gives producers marketing and pricing freedom. On the other hand, India also conducted its first auctions and, consequently, awarded the first licences for hydrocarbons exploration under a new revenue-sharing model, as opposed to the previous profit-sharing one. The auction was held under the new Hydrocarbon Exploration and Licensing Policy (HELP) approved last year to replace the controversial production-