FACTBOX-Effects of U.S. tax reform on European companies

LONDON, March 2 (Reuters) - What do the Trump tax cuts mean for European companies? The simplest impact is the top-line sales boost they will all get when profits that would have gone to the government are released into the economy via business investment and dividends.

It gets more complicated when you look at the direct tax impact on companies with transatlantic operations.

Here's what we've learned so far from an analysis of quarterly results statements by European companies with significant U.S. operations:


Most expect to pay less tax this year overall as a result of the changes, with the amount depending on the relative size of their U.S. operations. But that does not apply to all, because the tax base is also changing under the Trump reforms. DSM , for example, said it expected its effective group tax rate to remain at 18-20 pct. Power utility National Grid said the tax change impact would depend on discussions with regulators of its 14 regulated entities in the U.S.


Ten out of 40 companies that referred to the tax cuts are taking one-off charges on their results because the tax changes have hit the value of their deferred tax assets - credits that can be used to offset a future tax bill.

Those companies include miner BHP Billiton (income tax expense of $1.8 bln), Shell (non-cash charge of $2 bln), ThyssenKruppp, Standard Chartered and Valeo.

Of the rest, nearly all see a positive impact because of a reduction in their deferred tax liabilities, including Reckitt Benckiser (1.6 bln GBP), National Grid (around $2 bln), Unilever (578 mln euros), Relx (346 million GBP)


The final impact on both U.S. and European companies is still to be understood because it will depend on tax base changes, changing tax optimisation structures and (in the case of European companies) forex adjustments that are hard for financial analysts to model.

That is why analysts have been slow to tweak their 2018 earnings estimates even though the reforms were passed around the turn of the year.

"If you look at euro zone equities as a whole, the impact is pretty moderate," said Mike Bell, Global Market Strategist at JPMorgan Asset Management.

It estimates that European equities get about 18 percent of their revenues from the United States and there have been upgrades of about 7-8 pct for U.S. 2018 earnings since the beginning of the year.

"In aggregate you're talking about 1-2 pct upgrades for European companies as a result of the U.S. tax cuts," said Bell.

More than a sixth of companies in the pan-European Stoxx 600 index derive more than a third of their revenues from North America, according to Thomson Reuters data. (Reporting by Alasdair Pal, Editing by Tom Pfeiffer; Editing by Jon Boyle)