BAT, Micro Focus Buck FTSE 100’s ‘One Off’ U.S. Tax Hit Trend

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By Ben Stupples

British American Tobacco Plc and Micro Focus International Plc have bucked the trend of companies on the U.K.’s benchmark FTSE 100 index warning of “one-off” charges through U.S. tax reforms.

The world’s second-largest listed cigarette maker said in a Jan. 9 news release that it will receive an “exceptional” tax credit from the U.S. tax code rewrite that lawmakers passed last month. The credit relates to the London-based company’s $49.4 billion buyout of Reynolds American Inc. in 2017, it added.

Micro Focus Chief Financial Officer Mike Phillips, meanwhile, said in a Jan. 8 earnings call that the rewrite will give the U.K.’s largest listed tech business a credit of as much as $700 million this year. The credit is a “one-off” and an initial estimate, the company said in its Jan. 8 half-year results.

Corporate Rate Cut

Signed by President Donald Trump Dec. 22, the U.S. tax cut act ( Pub. L. No. 115-97) is forcing multinational businesses to reassess their balance sheets through its slashing of the U.S. corporate tax rate to 21 percent from 35 percent. While the move will cut companies’ tax bills in the long term, some face one-off charges due to a loss of value in their carried-forward U.S. taxes that count as an asset on balance sheets.

In the past month, FTSE 100 businesses Barclays Plc, BP Plc, and Royal Dutch Shell Plc have warned that the U.S. corporate tax rate cut will writedown the value of their deferred tax assets by at least $1 billion each. Outside of the U.K., Credit Suisse Group AG similarly warned Dec. 22 that the new U.S. tax laws will reduce its deferred tax assets by around 2.3 billion Swiss francs ($2.3 billion).

Like the other companies, British American Tobacco said the U.S. tax cuts will reduce its overall effective corporation tax rate next year. As a result, the maker of Lucky Strike cigarettes expects to see earnings-per-share increase by 6 percent in its full-year results for 2018.

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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