On the same day it announced a $17 billion loss for the second quarter of 2010, BP this week said that it plans to claim a $9.9 billion taxation credit from the U.S. government for costs incurred during the oil spill cleanup operation in the Gulf of Mexico. Jason Bramwell reports.
In its second-quarter earnings report, BP revealed that it would record a charge of $32.2 billion to reflect the impact of the oil spill, which entered its 100th day yesterday. Those costs include $2.9 billion for the response and a charge of $29.3 billion for future costs, including the $20 billion escrow fund established to compensate people and businesses affected by the oil spill.
"We expect we will pay the substantial majority of the remaining direct spill response costs by the end of the year. Other costs are likely to be spread over a number of years, including any fines and penalties, [and] longer-term remediation, compensation, and litigation costs", outgoing BP CEO Tony Hayward said in a press release. Robert Dudley will become the first American to lead the London-based energy company when he succeeds Hayward as CEO in October.
Under U.S. corporate tax law, companies can take credits on up to 35 percent of their losses. That means BP could save approximately $10 billion on its U.S. tax bill. However, The Washington Post reported July 27 that the tax credit could mean taxpayers will indirectly foot part of the bill for the $20 billion-compensation fund.
White House press secretary Robert Gibbs reiterated this week that American taxpayers will not be responsible for any costs related to the oil spill. When asked whether BP should pursue the tax credit, Gibbs said",I don’t think anybody would prefer that they do that. There are tax laws in this country that have been written for quite some time."
"The [Obama] administration will ensure that any action that BP takes respects the law as it is", Gibbs added.
According to The Washington Post report, policymakers crafted the tax code so companies can spread their profits and losses over more than just one calendar year. For example, a company could make $100 billion one year and pay the U.S. corporate tax rate of 35 percent, or $35 billion, and lose $100 billion the next year when the economy goes south. Over those two years, the company made nothing, but still paid $35 billion in taxes.
From the tax code's perspective, the company overpaid in previous years. To rectify this, companies can claim a credit, also at the 35 percent rate. Companies can seek a refund for taxes paid from the previous two years or, if there is money leftover, carry the credit forward up to 20 years, the report stated.
U.S. Rep. Eliot Engel (D-NY) criticized BP for its pursuit of a tax break at the expense of the American people, calling it "simply shameful."
"If this is not proof positive that corporate greed is out of control, then I shudder to think what could be next. When Goldman Sachs [Group Inc.] was fined over $500 million due to their business practices, they did not seek tax deductions [last month], as was their right. When your company is making Goldman Sachs look like a model of corporate behavior, then you have clearly lost any credibility", Engel said in a written statement.
"Claiming billions of dollars in losses is an affront to the hardworking people of the Gulf Coast who have lost their livelihood as a result of this spill", Engel said. "I call on BP to show, for once, a glimmer of humanity in this situation and halt its claim for this tax break immediately."