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.
- Transocean dodges paying U.S. corporate taxes by locating its headquarters in Switzerland
- Eliminating tax subsidies for oil companies