The Citigroup Inc (NYSE:C) announced recently that the tax plan is likely to take an upfront of 16$ billion to $17 billion hit when writing off the deferred tax assets if the tax bill becomes the law. An addition of $3 billion to $4 billion will be deducted from the taxes on the money held overseas companies. The announcement was made during the recent investor conference in NYC.
A deferred tax asset is a significant benefit for the company, which enables it to claim for their tax relief in the near future. Citigroup has already planned the assets as they anticipate a 35% tax rate. In case the rate drops to the normal GOP’s target which is 20%, the company assets will be less to the Citigroup and hence the difference between them should written off.
If the tax bill is passed into law by the Senate, the Citi Company expects to gain noncash charge to earn about $20 Billion if it’s within the US. According to the John Gerspach, the Citi’s chief financial officer, the hit which is converted into profit from the bank writes down its deferred tax assets in the period that the bill is signed.
The $3 billion to $4billion of charge will accrue from the excise of unremitted foreign earnings. Gerspach stated that the tax bill is the best estimate of the year and that the company would receive an upfront hit for $20 billion. The lower tax rate ensures that banks must write down the deferred assets, that heap up whenever the firm loses cash and is automatically denied the chance to enjoy the tax relief benefits of the asset loses.
The lower the costs, the higher the earnings that the company gains in the long run. However, the one-time hit to earnings can sometimes lead to a straining quarter and the financial year for lenders.