The Goldman Sachs Group Inc. (NYSE:GS) has said that it will be having $5 billion profit cut thanks to Trump’s new tax reforms for businesses. The company says that this is due to a new tax that is targeting earnings held by companies abroad, which evidently Goldman Sachs has a lot of.
For the most part, bank stocks have been doing well based on the tax bill’s lower corporate rates; however this new law will start charging foreign earnings made by the firms and, as a result, foreign earnings will begin to be heavily taxed. This will cause the value of deferred tax assets to decline.
In the old system, companies were allowed to defer on their US taxes until they brought back any earnings that were being held abroad (which meant, unsurprisingly, that many companies left those earnings outside of the US so as not to have to pay any taxes on them). Now, there’s no hiding outside of the border. Under the new law, the income for any US company that is being held as cash outside of the US will be subject to a 15.5% tax rate; any non-cash holdings are subject to an 8% rate.
Goldman Sachs has been used to achieving 40% of its revenue outside of the US. In 2016, the banking firm had reinvested $31.2 billion in earnings abroad. With this no longer being a viable option for it, Goldman Sachs, along with other companies that rely on this method, stand to lose a lot of their revenue streams.
It has been estimated that Goldman Sachs’ total charge from the tax bill could be $3.2 billion.
This law isn’t just moving forward either; it went into action as soon as Trump signed the bill into law last week. This has left many companies scrambling to figure out a way to compensate for their inevitable losses.
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