T. Rowe Price sees FY18 effective tax rate 24%-27%
On December 22, 2017, a comprehensive U.S. tax reform bill originally known as the "Tax Cuts and Jobs Act" was enacted into law. T. Rowe Price Group is required to recognize the effect of the Tax Reform in its 2017 financial statements, even though the effective date of the law for most provisions is January 1, 2018. Based on information currently available, the Firm's 2017 financial statements will include a one-time charge to net earnings of approximately $71M (28c in diluted earnings per share) to reflect the remeasurement of the Firm's deferred tax assets and liabilities and the recognition of a tax liability for the mandatory deemed repatriation of the Firm's foreign sourced net earnings. The resulting increase in the Firm's 2017 effective tax rate from this charge is expected to be offset in part by higher than expected tax benefits related to the exercise of stock options and vesting of restricted stock, and net income attributable to redeemable non-controlling interests. Thus, the Firm estimates its effective tax rate will increase to approximately 37%, compared with 35.9% disclosed in its third quarter 2017 earnings release. The Firm estimates that the reduction in the U.S. corporate tax rate (from 35% to 21%) in 2018, combined with other miscellaneous tax changes that affect certain tax deductions, will result in a lower 2018 effective tax rate in the range of 24.0% to 27.0%. The Firm's effective tax rate will continue to experience volatility in future periods as the tax benefits recognized from stock based compensation are impacted by market fluctuations in the Firm's stock price and timing of option exercises. The rate will also be impacted by changes in our consolidated investment products that are driven by market fluctuations and changes in the proportion of their net income that is attributable to non-controlling interests, which is not taxable to the Firm. The Firm continues to evaluate the impact of the Tax Reform that might result in changes to its estimates and expectations due to changes in the Firm's interpretations of the law changes, assumptions used, and additional guidance that may be issued.