Tax overhaul to cost Goldman Sachs $5bn in fourth quarter

NEW York bank Goldman Sachs expects to take a $5 billion (R61bn) hit to profits for the fourth quarter and year because of the tax overhaul signed into law last week.

On Friday the bank said two-thirds of the $5bn were due to changes in repatriation taxes, when funds are returned from overseas.

The remainder included the “effects of the implementation of the territorial tax system and the remeasurement of US deferred tax assets at lower enacted corporate tax rates”.

Goldman, which releases fourth-quarter and annual results in mid-January, had profits of $ 2.35bn in the fourth quarter of 2016, and annual profits of $ 7.4bn. Revenue last year was $30.61bn.

US companies had found ways to legally park money overseas to avoid the higher US corporate tax.

It has been expected that changes in the law would prompt some of those companies to return money to the US, potentially $2.5 trillion or more.

Economists believe the overall effect on the economy will be muted because of cuts to the US corporate tax rate.

A 2004 law temporarily cut taxes on repatriated profits to 5.25% from 35%.

That prompted 843 companies to bring back $312bn. However, those companies tended to use the money to buy back shares of their own stock, not to hire or expand operations.

The tax change for Goldman Sachs was revealed in a filing with the US Securities and Exchange Commission early on Friday. – AP

PICTURE: AP Goldman Sachs headquarters in New York. The company is set to be hit with an extra $5 billion tax bill.