U.S. Tax Reform Boost for FTSE 100 Companies Nears $2 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 boost of almost $2 billion, according to data compiled by Bloomberg Tax.

Unilever, the Anglo-Dutch consumer-product giant, said Feb. 1 in its latest full-year results that the new U.S. tax laws will give it a benefit of 578 million euros ($719 million). The announcement follows similar disclosures from other FTSE 100 businesses—Diageo Plc, Micro Focus International Plc, and Halma Plc—since the start of 2018 that total $1.2 billion.

Unilever’s announcement is a further sign that U.K. businesses are seeing immediate benefits from tax changes in the U.S., despite initial warnings from FTSE 100 companies on their short-term cost.

The 2017 U.S. tax act ( Pub. L. No. 115-97) is forcing multinational businesses to reassess their balance sheets after it cut the 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. These deferred taxes count as an asset on balance sheets.

Malcolm Joy, a London-based international tax partner at the global accounting firm BDO UK, told Bloomberg Tax he expected U.K. companies with U.S. subsidiaries to have deferred tax liabilities more often than deferred tax assets. The reduction in the U.S. corporate tax rate will lower the value of companies’ deferred tax liabilities and thus boost their balance sheets.

“For accounting purposes, you tend to recognize deferred tax liabilities as soon as you know of them, while with assets you don’t usually recognize them until they’ve definitely come in,” Joy said Feb. 1. “Companies with deferred tax assets will be hit in the short term by the lower corporation tax rate, but they will certainly benefit from it over the long-term.”

Higher Cost Overall

While the new U.S. tax laws have given the U.K.’s largest public companies a total short-term boost of $1.9 billion, the same group of global companies are still facing bigger hits to their bottom line.

Since Dec. 27, Barclays Plc, BP Plc, and Royal Dutch Shell Plc have said that the U.S. corporate tax rate cut will reduce the value of their deferred tax assets by at least $1 billion each.

Julie Brown, the chief financial officer of fashion retailer Burberry Group Plc, also said in a Jan. 17 call with analysts that the reforms will cost the company as much as 15 million pounds ($21 million).

The total cost over the four businesses is $5.4 billion, according to data compiled by Bloomberg Tax.

Complex Structures

In a Dec. 19 note, Bloomberg Intelligence analysts warned that multinational companies’ complex tax structures could reduce any financial advantage from the new U.S. tax law.

That warning has proven true for the likes of Barclays, BP, and Credit Suisse AG, which said Dec. 22 that U.S. reform will reduce its deferred tax assets by around 2.3 billion Swiss francs ($2.5 billion).

At the same time, though, drinks-maker Diageo said in its Jan. 25 half-year results it will receive an “exceptional” tax credit of 360 million pounds due to the new U.S. tax laws.

Similarly, health-and-safety technology company Halma said in a Jan. 16 statement it will have a “one off” tax credit of around 15 million pounds, while the chief financial officer of Micro Focus said the U.K.’s largest tech business will receive a credit of as much as $700 million from the U.S. laws.

Overall, the reforms will have a “significant” effect worldwide by making the U.S. a more attractive place to do business, John Connors, tax director at telecommunications company Vodafone Group Plc, told Bloomberg Tax for a Jan. 22 feature article on key issues for international tax in 2018.

“A lot of people’s time during the first half of the year is going to be spent working out the effects of the reforms in the U.S.,” Glyn Fullelove, head of tax at London-based global events and publishing company Informa Plc, told Bloomberg Tax in a telephone interview for the same article.

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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