BP plans to cut its overall tax bill by nearly $13 billion by writing off costs related to last year’s mammoth oil spill as the Gulf Coast continues to grapple with the devastating environmental and economic costs of the disaster one year later.
The international oil giant suffered a $40.9 billion loss as a result of the oil spill, making its net losses for 2010 a total of $4.8 billion (BP had $36.1 billion in profits before factoring in the spill), according to its annual report filed with the Securities and Exchange Commission and analysis by several tax experts consulted by TPM.
Under U.S. corporate law, companies can take credits on up to 35 percent of their losses. In this case, that means U.S. taxpayers are indirectly subsidizing at least part of cleanup cost and the $20 billion fund BP created to compensate people, fisherman and businesses along the Gulf Coast hurt by the spill.BP may spread that $40.9 billion loss over 2010 and the next few years until all the payments are paid to the victims. Companies can only deduct the amount of losses paid out in any given year, and the trust fund likely will be paying victims for years to come.
A BP spokesman for U.S. operations pointed TPM to the company’s publicly reported overall profit and loss numbers for 2010, although he repeatedly would not say whether BP paid any taxes to the IRS for 2010 or received a tax refund. The overall profit and losses represent both U.S. and overseas operations, and the annual report did not provide a breakdown of tax liability for the U.S. alone.
“For the year BP as a whole had a $4 billion loss …” said the spokesmen, Daren Beaudo. “We made less money and as such paid fewer taxes.”
BP’s “upstream business,” which is separate from oil drilling, paid $1.093 in “production taxes” to the U.S., Beaudo told TPM in an e-mail. But he declined to provide total taxes the company paid the IRS for all of its divisions.
“I am not deft enough to point you quickly to what we paid in the other business segments,” Beaudo said in an e-mail exchange.
After two days of e-mail exchanges and follow-up questions, Beaudo said he would put TPM on the phone with a tax expert at BP, but as of late Wednesday afternoon, had yet to do so.
Scrutiny of corporate tax payments is even more intense after the New York Times last month reported that General Electric paid zero U.S. taxes on $5.1 billion in U.S. profits, and in fact claimed a $3.2 billion benefit.
TPM pulled the numbers for BP’s oil spill loss from its 2010 annual report, which accurately reflects the tax burden BP incurred last year and reported to its shareholders.
The New York Times used the same process when it came to the conclusion that General Electric did not pay any taxes, and in fact, may have received a $3.2 billion refund.
But a company’s annual report does not directly correlate to what it pays in taxes for a given year, because the tax burden incurred for a particular year could take several years to pay out, as is the case with the BP victim trust fund and other clean-up costs.
Companies also often claim credits from previous years, as well as prior losses, so there’s no way to tell whether BP paid taxes this year, paid nothing or stands to get a refund, unless they cough up to their returns.
As of Wednesday afternoon, they had yet to provide the official numbers on their IRS 2010 return or the return itself to TPM.
Last summer, BP’s first admission that it planned to take what at the time was $9.9 billion in tax credits for the spill caused an uproar in Washington because the White House had repeatedly said U.S. taxpayers would not be responsible for the cost of the spill, according to a report in the Washington Post.
When asked whether BP should be claiming a credit, White House press secretary Robert Gibbs told reporters: “I don’t think anybody would prefer they do that.”
But Gibbs also noted, “There are tax laws in this country that have been written for quite some time.”
President Obama issued a statement Wednesday to mark the anniversary of the spill. In it, he said his administration continues “to hold BP and other responsible parties fully accountable for the damage they’ve done and the painful losses that they’ve caused.”
Obama was referring to the nearly $632 million the U.S. has billed and received from BP and other responsible parties so far for the cost of the work performed by the U.S. Coast Guard and the Environmental Protection Agency and other agencies during and after the spill. The Justice Department also has sued BP under the Oil Pollution Act of 1990 and Clean Water Act, and the first trial in the civil litigation is set for February 2012.
“Under current law, responsible parties are financially liable for all costs associated with cleaning up the spill, and the Administration continues to bill all eligible costs associated with the response back to the responsible parties,” an administration official told TPM. “To date, the Administration has sent 10 bills, of which the first nine have been reimbursed in full by BP – totaling $632 million.”
In addition, in September of last year, Navy Secretary Ray Mabus recommended the passage of legislation to create a Gulf Coast Recovery Fund which would be authorized to receive and use a significant amount of any civil penalties that may be recovered under the Clean Water Act from the responsible parties to the oil spill. These funds would then be used to address the recovery needs that fall outside of the scope of the Oil Pollution Act. Congress has yet to pass the legislation.
When first hearing of the deduction last year, some lawmakers on Capitol Hill including Rep. Eliot Engel (D-NY), called on BP to reconsider its decision and refuse to take a tax credit for the losses.
Taxpayer-interest groups are still denouncing BP’s ability to write-off the spill-related losses.
“In the first instance, taxpayers have this blight on their hands with this spill in the Gulf, and the company is able to make it better for their bottom line by writing off the costs when it should be just doing their duty for clean up,” said Steve Ellis of Taxpayers for Common Sense. “It really just adds insult to injury.”
But top tax experts say the tax code doesn’t penalize businesses for negligence or fault associated with their losses.
“The law is very clear that these expenses are deductible,” said Robert Willens, a corporate tax expert. “The acts that gave rise to the liability were performed in the ordinary course of BP’s business. Those expenses are deductible without question.”
In fact, if BP did not take the full amount of write-offs for he losses, the company would be subject to a lawsuit from its shareholders, according to Ken Kies, a top tax lobbyist in D.C.
“I don’t even think they have a choice, to be honest with you,” Kies told TPM.