U.S. taxpayers paid BP to lease Deepwater Horizon rig — which was incorporated in a foreign country for the purpose of avoiding the U.S. corporate tax

BP’s tax deduction was “more than $225,000 a day”

Transocean, the company that owns the failed Deepwater Horizon rig that caused the Gulf oil spill, used well-known tax havens in the Cayman Islands and Switzerland to lower its U.S. corporate tax rate by almost 15 points. And, as TP reports, due to a break in the U.S. tax code, BP was also allowed to write off the rent it paid to Transocean on its own tax bill, saving it hundreds of thousands of dollars per day:

The owner, Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008, maneuvers that also helped it avoid taxes. At the same time, BP was reaping sizable tax benefits from leasing the rig. According to a letter sent in June to the Senate Finance Committee, the company used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon “” a deduction of more than $225,000 a day since the lease began.

So, essentially, the U.S. taxpayer paid BP to lease a rig that was incorporated in a foreign country for the purpose of avoiding the U.S. corporate tax. And the U.S. tax code is actually riddled with breaks for the oil industry, despite that industry’s record profits in recent years. Center for American Progress Senior Policy Analyst Sima Gandhi has counted nine different subsidies that the U.S. government gives to the oil industry, including refunds for drilling costs and refunds to cover the cost of searching for oil. If this corporate welfare were cut, it would save $45 billion per year, and according to the Office of Economic Policy at the Department of Treasury, “affect domestic production by less than one-half of 1 percent.” “The flow of revenues to oil companies is like the gusher at the bottom of the Gulf of Mexico: heavy and constant,” said Sen. Robert Menendez (D-NJ). “There is no reason for these corporations to shortchange the American taxpayer.”

JR:  Here’s more from the NYT story:

An economist for the Treasury Department said in 2009 that a study had found that oil prices and potential profits were so high that eliminating the subsidies would decrease American output by less than half of one percent.”We’re giving tax breaks to highly profitable companies to do what they would be doing anyway,” said Sima J. Gandhi, a policy analyst at the Center for American Progress, a liberal research organization. “That’s not an incentive; that’s a giveaway.”

Some of the tax breaks date back nearly a century, when they were intended to encourage exploration in an era of rudimentary technology, when costly investments frequently produced only dry holes. Because of one lingering provision from the Tariff Act of 1913, many small and midsize oil companies based in the United States can claim deductions for the lost value of tapped oil fields far beyond the amount the companies actually paid for the oil rights.

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6 Responses to U.S. taxpayers paid BP to lease Deepwater Horizon rig — which was incorporated in a foreign country for the purpose of avoiding the U.S. corporate tax

  1. Fehr smith says:

    BP paid 34 million dollars to the government for those leases. (they have 2 partners)
    The royalty on the production from the lease is 18.75%
    These facts show no example of “corporate welfare”
    The fact there is oil and it is not being pumped and sold represents an opportunity cost. So far the larger source of revenue from the lease is taxes on payroll and well and cleanup services. The Feds are making money on this well in the form of a myriad of taxes.

  2. Tim L. says:

    Smith, the point is that the Big Oil has enjoyed decades of subsidies, yet they and their lackeys argue the myth that renewables can’t compete on their own without subsidies or tax incentives. Seems to me that our libertarian/free market friends should WELCOME the cutting of subsidies to Pig Oil and let them compete on a level playing field with renewables.

  3. Robert says:

    In the UK Chancellor Brown slapped a windfall tax on North Sea oil back in 2005 when everything looked rosy and oil prices were ramping up. North Sea oil peaked in 1999 so the extra tax hastened the end of what was a dying production region anyway.

    Exit stage left the oil majors, leaving small operators to pick over the remains. BP concentrated the efforts on more lucrative prospects such as The GOM.

  4. Raindog says:

    I read this article and was a little puzzled. Are they writing off a business expense? Writing off a business expense is different than getting a subsidy. All businesses write off expenses. If you are a building contractor and the customer pays you 10,000 for plumbing and you pay the plumber 8000 then you don’t have to pay taxes on the 8000 – you “write them off” (but you do have to pay on the 2000 you kept as profit).

    How is this different?

    If they got $225,000 per day as a tax credit that is one thing. If they did not have to pay taxes on $225,000 per day that is another.

    Now the thing that should get people upset is that Transocean is registered in a foreign country to dodge US taxes. That is reprehensible and should should not be tolerated.

  5. PeterW says:

    Re:Robert 3.

    Would you please explain how adding a windfall tax on North Sea oil hastened its end? If anything, I would expect it to lengthen the life of the North Sea oil field.

  6. UK prepares for risks of a BP collapse

    Robin Pagnamenta and Miles Costello at The Times report:

    “THE British government is drawing up contingency plans for a possible collapse of BP, The Times has learnt.

    News of the preparations come amid mounting fears that the oil giant could be broken up or taken over in the wake of the Gulf of Mexico oil disaster.

    The talks, which are being led by officials at the Department for Business and the Treasury, reflect growing concern within Whitehall about the implications that a corporate failure of BP, formerly Britain’s biggest company, would have on UK interests domestically and around the world.

    BP, whose value has more than halved since the accident on April 20, has liabilities of up to $US70 billion ($83.4bn), according to estimates by Goldman Sachs. …”

    Full story reprinted at