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How Taxes Have Affected Garmin

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Garmin faced with a 20.8% tax hit

In 3Q17, Garmin’s (GRMN) effective tax rate was 20.8% compared to 16.5% in the same period last year. A tax rate of 20.8% meant that Garmin surrendered over $38.6 million of the profits it generated in 3Q17 to the taxman, thus ending up with a smaller profit. The company posted a net profit of $147.4 million after accounting for the impact of taxes.

Garmin said that the increase in its tax bill in 3Q17 had been caused by its decision to align its tax positions. For 2017, during which Garmin’s revenue is expected to have risen more than 3.3% over 2016, Garmin is preparing for a 21.5% tax hit.

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US cutting corporate tax to 21%

It’s important to examine the impact of taxes on Garmin now that the (SPY) president of the United States, Donald Trump, has signed into law a Congress bill that overhauls America’s tax code. The highlights of the new tax law include a significant reduction in the corporate tax rate. In the law, the corporate tax rate is set at 21%, compared to 35% under the outgoing tax regime.

Potential economic stimulant

US companies such as Apple (AAPL), AT&T (T), Verizon (VZ), and Comcast (CMCSA) favored the tax reforms, hoping that a lower corporate tax rate would encourage investments and in turn spur job creation and economic growth.

Apple, Microsoft (MSFT), and Cisco Systems (CSCO), some US multinationals with billions of dollars in repatriated foreign earnings, are also expected to bring the cash home at a reduced tax burden.

Garmin has its tax residence in Switzerland.

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