Is Europe exposed to the One Big Beautiful Bill Act?

Investing.com -- The United States’ One Big Beautiful Bill Act (OBBBA) is expected to reshape corporate cash flows through generous tax provisions, but its impact on Europe is more nuanced, as per analysts at Morgan Stanley.

The law reintroduces two measures: immediate and retroactive expensing of U.S. research and development, and 100% bonus depreciation for qualifying capital expenditures.

For American companies with large R&D operations or capital spending, this translates into a material free cash flow boost.

For European companies, exposure is less pronounced but still relevant given that about 23% of MSCI Europe revenues come from the U.S.

Morgan Stanley research finds that only 2.2% of European corporates mentioned OBBBA or cash tax benefits in second-quarter 2025 earnings calls, compared with 11% of U.S. firms.

This limited disclosure suggests European management teams and analysts are not yet fully engaged with the law’s potential effects.

The exposure of European firms depends on several factors: the scale of their U.S. R&D and capital spending, the location of employees and operations, and complex cross-border tax arrangements that may dilute benefits, the brokerage said.

For example, regulated utilities are not eligible for bonus depreciation, while companies with intercompany cost-sharing arrangements may see muted effects.

Using U.S. local-to-local and services revenue as a proxy, Morgan Stanley estimates that European companies’ exposure to these provisions stands at around 18% of revenues.

Screening for companies most likely to benefit, the report highlights firms in healthcare and technology.

Pharmaceutical companies such as argenx, Genmab (NASDAQ:GMAB), Indivior, Roche, and Novo Nordisk (NYSE:NVO), along with software groups like Nemetschek and Sage, appear positioned to capture advantages from upfront R&D expensing.

Meanwhile, capital-intensive firms such as Deutsche Telekom (OTC:DTEGY), Ashtead Group (LON:AHT), CRH (NYSE:CRH), and Air Liquide (OTC:AIQUY) stand out as potential beneficiaries of bonus depreciation.

Some management teams have already acknowledged the benefits. Deutsche Telekom expects T-Mobile US (NASDAQ:TMUS) to save $1-1.5 billion in cash taxes over the medium term, lifting free cash flow by up to 5%.

Ashtead Group said reinstating full depreciation could reduce its cash tax rate by about 10 percentage points, with a roughly $200 million impact.

Daimler Truck Holding (ETR:DTGGe) anticipates a mid-triple-digit million euro cash tax benefit over the next several years. Spanish steelmaker Acerinox (BME:ACX) also confirmed its U.S. investments would qualify for 100% deductibility.

Still, the analysis comes with caveats. Cross-border tax rules such as the U.S. Base Erosion and Anti-Abuse Tax may restrict benefits, while European minimum tax regimes could erode savings.

Many companies have yet to disclose exposure, making it difficult to quantify impacts with precision.