US tax reform to hit global firms over near-term, including BP, Barclays

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BP P.L.C. said on Tuesday that it will incur a $1.5 billion charge due to changes in the U.S. tax code, the latest global firm to forecast a near-term earnings blow as a result of the recently-approved U.S. legislation.

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The accounting charge will be a consequence of the 14 percentage point reduction in the U.S. corporate tax rate, to 21% from 35%, which will require “revaluation of BP’s US deferred tax assets and liabilities,” the company said in a statement. The $1.5 billion charge will impact the company’s fourth quarter 2017 results, which will be disclosed next month.

Last week, Royal Dutch Shell said it also expects its fourth quarter results to suffer a setback. While the company is still working on a complete impact analysis, it issued a statement saying it’s potentially on the hook for charges ranging from $2 billion to $2.5 billion.

It’s not just oil companies potentially facing large costs. Barclays, which is headquartered in London, expects to owe $1.3 billion, while Credit Suisse could pay $2.3 billion.

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Despite near-term disturbances, largely owing to the need to recalculate deferred tax assets, most multinational and foreign firms see the reduced U.S. corporate tax rate as a good thing. BP said it expects its future “US after-tax earnings to be positively impacted by the recently-enacted changes,” while Royal Dutch Shell said the new policies should be “favourable” for its U.S. operations.

Meanwhile, many experts expect the new tax code to encourage large U.S. firms to bring profits back onshore. Some large corporations, including AT&T (T) and Boeing (BA), have already committed to investing money back into their businesses. What will ultimately determine the impact on U.S. economic growth, experts told FOX Business, is whether more companies reinvest that cash rather than use the extra funds to buy back shares, which would have a more muted impact on economic growth.

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