How do you model a tax-rate change — the impact on existing DTAs / DTLs?
When the statutory tax rate changes, existing DTAs and DTLs must be remeasured at the new rate — the effect hits the income statement in the year of the change.
```
DTA / DTL = temporary difference × tax rate
```
In a rate cut, both existing DTAs and DTLs fall proportionally. The income-statement effect is the net Δ across all positions.
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| Position | Before (30%) | After (25%) | Δ | Income-stmt effect |
|---|---|---|---|---|
| Existing DTL (on difference 100) | 30 | 25 | −5 | +5 tax benefit |
| Existing DTA (on NOL 200) | 60 | 50 | −10 | −10 tax expense |
| Net | −5 tax charge |
0 — a purely accounting remeasurement.
Spain's 2014 reform (30% → 25%, phased) triggered billion-scale DTA remeasurements at Spanish banks. The US 2017 reform (35% → 21%) had comparably massive effects on US targets.
For targets with large DTAs / DTLs, show the tax-rate-change risk in the sensitivity — less relevant for stable-rate middle-market names, historically important for US targets (post-2017).
'For a ±200 bps tax-rate change, the equity-value sensitivity is ±$2m from DTA remeasurement — negligible in a stable-rate environment'.