International Personal Finance PLC (LON:IPF) saw its shares drop over 10% today after the home credit and digital loans provider detailed the impact on its business of proposed changes to corporate income tax in Poland.
In a statement, the small cap firm said the changes would “increase the tax payable arising from disallowance of tax deductions for expenses linked to certain intra-group transactions.”
READ: International Personal Finance tops the FTSE 250 fallers, impacted by a Polish tax decision
It added that the proposals would result in an increase in the group’s tax charge of around £12mln to £14mln in 2016 against underlying profits of £99.3mln, taking its tax charge to 39%.
In addition, the firm said, it would result in a one-off accounting charge in 2017 of up to £30mln arising from the write-down of a deferred tax asset.
IPF noted that “work has commenced to evaluate potential changes to our business operations in order to mitigate the impact of this proposed legislation.”
Numis puts ‘buy’ rating ‘under review’
In a note to clients, analysts at Numis Securities pointed out that IPF’s Polish business made a pre-tax profit of £62mln last year and said “including the base tax charge, it looks like IPF will have an effective tax rate of in excess of 40% in Poland, assuming they are unable to mitigate this.”
They added: “With the ongoing review of the interest rate cap in Poland, Poland looks to be an increasingly difficult market (especially for non-domestic lenders, as the domestic banks are not impacted by this tax change) with government policy making the operating environment challenging at best.”
Numis has placed its target price and rating for IPF ‘under review’ from ‘buy’.
In late morning trading, IPF shares were down 10.3%, or 21.75p at 189.50p.