Shell, Barclays Detail Billions in Charges Related to U.S. Tax Changes

By Sarah Kent and Max ColchesterFeaturesDow Jones Newswires

Royal Dutch Shell PLC and Barclays Bank PLC said they would take large charges attributable to the U.S. tax overhaul--joining a parade of global firms in recent days disclosing how American tax-bill changes will affect their bottom line.

Shell estimated its U.S. tax-related charge in the fourth quarter could amount to between $2 billion and $2.5 billion, stemming from a reduction in the value of its deferred tax assets. Companies can log such assets during unprofitable periods and can use them to offset future tax payments. Those assets--essentially credits toward future tax payments in the U.S.--are worth less after the tax overhaul sharply reduced headline corporate tax from 35% to 21%.

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Barclays, meanwhile, said it would take a noncash charge of GBP1 billion ($1.3 billion) in the fourth quarter, citing similar changes in the value of its deferred tax assets and liabilities. The charge, combined with other restructuring costs, is expected to push the U.K. bank to a net loss for the year. Barclays also said its capital ratio, a key measure of balance-sheet strength, will fall by 0.2 percentage point--though that would likely be too small to worry investors.

Shares in Shell and Barclays were trading slightly higher in midmorning trading in London.

Both companies said that despite the big paper losses, they viewed the drop in U.S. corporate taxes as a positive in the longer run. Barclays, though, said that it was still reviewing the effect of other provisions in the tax overhaul, including those related to so-called base erosion. Foreign firms have complained the base-erosion measures--which drafters of the overhaul say should discourage tax avoidance by companies seeking to move profits to lower-tax jurisdictions--could also affect many legitimate tax arrangements by multinationals, and add to their overall tax burden.

"It is possible that any impact of [the base erosion measures] could significantly reduce the benefit of the reduction in the statutory U.S. federal rate," Barclays said. The bank said that because of uncertainty over how these measures would be applied, it wasn't possible to "reliably estimate" how they would affect the bank.

On Friday, Credit Suisse Group AG said it would write off $2.3 billion in the fourth quarter--as it also decreased the value of tax-deferred assets dating back to financial crisis-era losses.

The tax rewrite, signed by President Donald Trump last week, brings lots of benefits for U.S. companies, including the sharp drop in the U.S. headline corporate tax rates. Many foreign firms will also benefit from that drop. But other benefits are less clear, and in some cases the reworked U.S. tax code could hurt non-American firms.

Credit Suisse, for instance, said that a new U.S. tax on services and interest payments to affiliated companies outside the U.S. could push its tax liability up. The bank said the U.S. tax overhaul, in the longer term, would boost U.S. economic activity and its business there.

In a flurry of disclosures starting Friday, executives in the U.S. and overseas have tried to give investors a first blush of what to expect. Last week, AT&T Inc. promised $1,000 bonuses for some 200,000 workers, thanks to the tax cut. Boeing Co. said earlier this week expected savings from the tax overhaul would trigger about $300 million in new investment.

For foreign firms, the biggest impact so far has been reassessments made on the value of deferred tax credits and liabilities.

German luxury car maker BMW AG said last week that it expects deferred tax liability adjustments to boost its 2017 profit by a range of between EUR950 million and EUR1.55 billion, ($1.13 billion to $1.84 billion), according to initial calculations. Rival Daimler AG said the expected change in the value of its deferred tax liabilities would result in a roughly EUR1.7 billion boost to its 2017 net income.

DIC Corp., a Japanese ink maker, said on Christmas Day it would downgrade its net profit forecast for the year by Yen6 billion ($53 million), because of the smaller value of its deferred tax assets.

Peter Landers in Tokyo contributed to this article.

Write to Sarah Kent at sarah.kent@wsj.com and Max Colchester at max.colchester@wsj.com

(END) Dow Jones Newswires

December 27, 2017 06:44 ET (11:44 GMT)