In December of 2023, British American Tobacco wrote down much of the value of its U.S. cigarettes business in the form of a $31.5 billion non-cash impairment. Starting in 2024, management will treat some of its U.S. cigarette brands as assets with a lifetime of thirty years. Affected brands include Newport, Camel, American Spirit, and Pall Mall.
Hi, I tapped IR on the impairment charge and its implications, specifically taxes.
In my first mail I asked (but it was badly worded): "And then, my second question, does the amortisation of these intangible assets over the next 30 years reduce taxable income by the same amount each year, thus reducing taxes to be paid, thus increasing free cash flow?"
And to this I got the response: "The US brand impairment / amortisation is not expected to impact ongoing corporate income tax payments in the USA."
Then I summarised their entire answer to my first mail (which included another question still) and asked them to either kindly confirm or disconfirm, to make sure I understood them correctly. Here's my summary: "The impairment is taken against the US brands (wherever they are sold); the impairment reduces the carrying value of the brands from roughly 78bn to 53bn. The remaining value of 53bn will be amortised over the next 30 years. This amortisation process will in no way reduce taxes BAT will have to pay either in the USA, in the UK at home, or wherever."
And here's their answer: "Yes, that is a great summary. One clarification, not the full 25bn will be allocated against the brands but the majority will be with some remainder against goodwill. Further details will be given in February."
So here we have it, according to IR, there's no beneficial effect on taxes coming from that amortisation.
Or is it possible that the person dealing with my request at IR was just ill-informed ?
Thanks for sharing this. IR is correct. The writedown doesn't confer tax benefits to BTI. Rather, accounting standards require periodic and independent appraisals of the company's assets. Here, that resulted in a lower valuation for the U.S. business. BTI would only realize a tax benefit upon the closing of a transaction (i.e., if it sold the unit at a loss).
Yes, and to be clear, I've written my comment because in a former, now amended version of your article here, you wondered whether the amortization would provide tax benefits. I wondered the same, that's why I reached out to IR a couple of days ago.
I've seen many ppl on the Internet asking themselves the same question, btw.
Hi, I tapped IR on the impairment charge and its implications, specifically taxes.
In my first mail I asked (but it was badly worded): "And then, my second question, does the amortisation of these intangible assets over the next 30 years reduce taxable income by the same amount each year, thus reducing taxes to be paid, thus increasing free cash flow?"
And to this I got the response: "The US brand impairment / amortisation is not expected to impact ongoing corporate income tax payments in the USA."
Then I summarised their entire answer to my first mail (which included another question still) and asked them to either kindly confirm or disconfirm, to make sure I understood them correctly. Here's my summary: "The impairment is taken against the US brands (wherever they are sold); the impairment reduces the carrying value of the brands from roughly 78bn to 53bn. The remaining value of 53bn will be amortised over the next 30 years. This amortisation process will in no way reduce taxes BAT will have to pay either in the USA, in the UK at home, or wherever."
And here's their answer: "Yes, that is a great summary. One clarification, not the full 25bn will be allocated against the brands but the majority will be with some remainder against goodwill. Further details will be given in February."
So here we have it, according to IR, there's no beneficial effect on taxes coming from that amortisation.
Or is it possible that the person dealing with my request at IR was just ill-informed ?
Thanks for sharing this. IR is correct. The writedown doesn't confer tax benefits to BTI. Rather, accounting standards require periodic and independent appraisals of the company's assets. Here, that resulted in a lower valuation for the U.S. business. BTI would only realize a tax benefit upon the closing of a transaction (i.e., if it sold the unit at a loss).
Yes, and to be clear, I've written my comment because in a former, now amended version of your article here, you wondered whether the amortization would provide tax benefits. I wondered the same, that's why I reached out to IR a couple of days ago.
I've seen many ppl on the Internet asking themselves the same question, btw.
Thanks for shedding light on this, Simon! I've updated the piece accordingly.
Great info! Thanks for sharing your communications with IR.