Deutsche Bank (DB) projects a loss of no less than €1.5bn for 2018 as a result of the recent Tax Cuts and Jobs Act of the Trump administration.
The US has reviewed corporate rates taxes from 35% to 21%. Crucially for DB, companies are no longer able to set their previous losses against tax. DB was one of the hardest hit companies from the 2008 banking crisis, paying out billions for its role in the subprime mortgage financial scandal.
Overall, Deutsche expects to benefit from reductions within 2018, but not for losses in the past.
The sweeping tax code reform is expected to hit hard a number of European lenders as it abolishes a tax on international profits for US companies. To date, profits made by US companies abroad are taxed if repatriated, which incentivises US multinationals to maintain billions abroad. Instead, the new bill taxes cash holdings abroad by 15,5%, illiquid assets by 8%, and illiquid income, such as patents, by 10%, encouraging repatriation.
Beyond tax reliefs, the bill also includes measures designed to boost exports. The bill allows for tax rebates for companies that export, effectively reducing the corporate tax burden for exporters to 12,5%. In addition, the bill introduces a 20% “excise tax” on payments made when an American company buys goods or services from their own subsidiaries, unless these are treated as income in the US. That move is significant, given that half of transatlantic trade is intra-company trade.
European partners are making the case that tax rebates constitute export subsidies, whilst intra-company excise taxes constitute “double taxation.” European governments argue that these measures violate World Trade Organization rules.