U.S. Tax Reform Boosts U.K. FTSE 100 Companies By $20 Billion

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By Ben Stupples

U.S. tax reform has given companies listed on the U.K.’s benchmark FTSE 100 stock index a total short-term financial gain of $22.4 billion, according to data compiled by Bloomberg Tax.

The disclosure comes fewer than four weeks after Bloomberg Tax revealed that the overall short-term boost for the U.K.’s largest public companies from the new U.S. law was approaching $2 billion.

The 2017 U.S. tax act ( Pub. L. No. 115-97) is forcing global businesses to reassess their finances through its slashing of the U.S. corporate tax rate to 21 percent from 35 percent. In the short term, companies can either benefit or suffer from a change in the value of their carried-forward U.S. taxes. All businesses will eventually benefit, though, from the lower headline corporate tax rate.

British American Tobacco Plc said it will receive a tax credit of 9.6 billion pounds ($13.3 billion) from the U.S. reform, according to its 2017 results released Feb. 22. The credit stems from a revaluation of assets arising from the London-based company’s $49.4 billion buyout of Reynolds American Inc. last year.

Barclays Plc, meanwhile, said in its 2017 results that the immediate net cost of the new U.S. tax law will be 900 million pounds, about 100 million pounds less than its prior estimate. The bank also released its results Feb. 22.

Changes to carried-forward taxes “will affect companies’ profit-after-tax calculations,” Heather Self, a tax partner at global accounting firm Blick Rothenberg, told Bloomberg Tax by phone Feb. 22. “On acquisitions, you tend to have significant numbers when it comes to deferred taxes.”

Early Warnings

Like Barclays, BP Plc and Royal Dutch Shell Plc sent out early warnings on the short-term impact of U.S. tax reform after President Donald Trump signed the law on Dec. 22. In separate market statements, all three companies said they faced immediate costs of at least $1 billion.

Since then, several FTSE 100 business have said U.S. reform will give them a short-term boost. In addition to British American Tobacco, energy network-manager National Grid Plc said Feb. 2 it will have a one-off tax credit of $2 billion from the new law. Anglo-Dutch consumer-product giant Unilever N.V. said Feb. 1 in its full-year results that it would have a benefit of 578 million euros ($711 million).

The fluctuation in fortune for these businesses is mostly due to whether they have carried-forward tax liabilities or carried-forward tax assets in the U.S. Any reduction in the U.S. corporate tax rate will lower the value of companies’ deferred tax liabilities and thus boost their balance sheet.

So far, eight FTSE 100 companies have said they face immediate charges on their deferred tax assets at an average cost of $1.2 billion, according to data compiled by Bloomberg Tax. A total of 15, conversely, have said they will benefit from the U.S. reform at an average rate of $1.5 billion.

“Large foreign multinational in the target zone will be spending a considerable amount of time trying to answer two questions” in response to the U.S. reform, Matthew Cutts, a Washington D.C.-based partner at global law firm Squire Patton Boggs, told Bloomberg Tax Feb. 22.

“The first question is: ‘What’s the impact?’ The second is: ‘What do we do about it?’”

( This article has been updated to say that valuation changes in deferred taxes will affect companies’ profit-after-tax calculations. )

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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