US President Donald Trump's tax reform bill has passed through both houses of congress, paving the way for the country's biggest tax overhaul in decades. As part of the bill, corporate tax rates are set to lower from 35% to 21%, and several ASX-listed companies have been quick to comment on the proposed legislation.
Computershare Limited (ASX: CPU) expects to record a one-off FY2018 statutory NPAT benefit due to the reduction of the company's net deferred tax liability amount. Computershare is currently undertaking a detailed evaluation of the tax act and expects to update the market further at its first half FY2018 results day on 14 February 2018.
BlueScope Steel Limited (ASX: BSL) announced its US earnings are expected to benefit from the bill in anticipating its regional effective tax rate to reduce 7% in FY2018 and 11% thereafter.
Ansell Limited (ASX: ANN) was another to make an announcement to the market this morning, the company stating the reduction in tax rate is expected to increase profit after tax around US$3 million to $5 million by FY2019. Ansell also predicts it will benefit from a one-off tax expense benefit of around $18 million to $22 million in FY2018.
These won't be the only ASX-listed companies to be affected by the new reforms, with other large companies like CSL Limited (ASX: CSL), Amcor Limited (ASX: AMC), Aristocrat Leisure Limited (ASX: ALL) and Macquarie Group Ltd (ASX: MQG) all having significant operations in the United States.
In a recent research note from Bell Potter, the stockbroker suggested lower corporate tax rates could provide a catalyst for further valuation upside for Macquarie, which generates 62% of total income from outside of Australia.
Macquarie shares have had a solid 2017; up 15% so far but are still well short of Bell Potter's 12-month price target of $108 a share.
Another factor that could benefit Australian investors in US-exposed stocks, is the impact these reforms will have on the AUD:USD exchange rate.
If significant funds are repatriated to the United States to take advantage of the lower tax rates, then the US currency should appreciate relative to its peers, including Australia.
Using Macquarie as an example, the company has stated that a 10% movement in the Australian Dollar will have a 6% impact on group net profit after tax.
Foolish takeaway
Lower taxes mean higher profits for companies, which will drive share price valuations higher. A favourable effect on exchange rates could produce a double benefit for Australian investors exposed to the US market.
Changes in the United States have placed further pressure on the Australian parliament to act on corporate tax reform, and the Treasurer Scott Morrison has already held a press conference this morning; reiterating the need for the Australian tax system to remain competitive on the global stage.
