U.K.-Listed Companies Take $900M U.S. Repatriation Tax Hit (1)

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By Ben Stupples

U.K.-listed companies will pay $910 million in tax from a one-off U.S. levy on multinational corporations’ overseas earnings, according to an analysis of corporate filings by Bloomberg Tax.

In total, 10 companies on the London Stock Exchange face the charge, including advertising business WPP Plc and British American Tobacco Plc. Pharmaceutical company GlaxoSmithKline Plc and BHP Billiton Plc, the world’s largest mining business, together make up more than half the total figure.

The companies’ U.S. subsidiaries are sandwiched between the U.K. parent business and a U.S.-controlled foreign subsidiary with offshore profits.

Included in the 2017 U.S. tax act ( Pub. L. No. 115-97), the one-time repatriation tax and the charges multinationals are facing from it highlight the global effect of the tax changes.

Setting a 15.5 percent levy on cash and an 8 percent charge on assets, the measure targets the foreign profits that U.S. multinationals like Apple Inc. and Microsoft Corp. stockpiled overseas to avoid domestic corporate taxes. Last month, the United Nations said in a special report on U.S. tax reform that the new law may lead to the repatriation of as much as $2 trillion.

London-based EY partner and international tax services leader Matthew Mealey said the U.K. businesses facing the charges have U.S. “sandwich” structures.

The structures are “quite common” across the top half of companies on the FTSE 100, usually from when they’ve acquired multinational U.S. businesses, he told Bloomberg Tax. In this cross-border setup, a U.K. multinational’s U.S. division has its own foreign subsidiary, he said.

Eight-Year Time Limit

Out of the 10 companies, seven are listed on the U.K. FTSE 100’s benchmark index, according to the data. In line with U.S. tax act, the companies can spread paying the charges across eight years.

GlaxoSmithKline will pay 60 percent of its 348 million-pound ($483.4 million) repatriation charge between the sixth and eight year, according to the company’s Feb. 27 full-year results.

Events and publishing company Informa Plc, meanwhile, cited the London-based company’s U.S. “sandwich” structure in a Feb. 28 news release on its 2017 results. The repatriation charge is “to be paid in respect of undistributed profits of non-U.S. subsidiaries of our U.S. group,” it said.

After GlaxoSmithKline and BHP Billiton’s $194 million charge, pharmaceutical business Shire Plc reported the third-largest repatriation tax charge. The company will pay $90 million, according to its Feb. 14 full-year results.

London-based education business Pearson Plc makes up the remaining FTSE 100 businesses to face the repatriation tax. In a Feb. 23 news release on its full-year results, Pearson recorded a 6 million-pound charge.

Deferred Corporate Tax

The scrapped U.S. tax law that resulted in multinationals piling up cash overseas allowed them to defer local income tax on foreign earnings until companies return the profits to the U.S.

Apple, the company with the largest stockpile of overseas earnings, said in January it expects to pay around $38 billion in repatriation taxes as it plans to bring $350 billion back to the U.S.

The Cupertino, Calif.-based company will focus on using the overseas earnings “in areas where we can have a direct impact on job creation and job preparedness,” Chief Executive Officer Tim Cook said in a Jan. 17 news release on Apple’s website. “We have a deep sense of responsibility to give back to our country and the people who help make our success possible.”

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

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

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