Wednesday, July 14, 2010

BP (NYSE:BP) Helped by Lower Taxes from Cleanup Costs

Something many people don't think about is the lower taxes BP (NYSE:BP) will enjoy from paying out the cleanup costs related to the Gulf oil spill.

Although it will be attacked by some, in a sense this is good news, as BP needs to survive, and even thrive, if they're going to be able to take care of their responsibilities in the matter.

So the $20 billion escrow fund will probably be a tax strategy for the oil giant over the next four years, as they pay out billions throughout the next several years to claimants.

This will be true in the U.S. and in Britain as well.

Depending on who you're listening to, the cleanup costs of BP, say if they were $60 billion, would result in about $20 billion in tax deductions over time, if you assume the 33 percent tax rate they paid out in 2009.

In the U.S. and focusing on the escrow fund, BP won't be able to take deductions until people are actually compensated. In other words, if they pay about $5 billion a year into it, they won't necessarily get tax deductions on that. If $3.5 billion were paid out for the tax year, that is what they would be able to take deductions on, not the entire amount.

What will raise a few eyebrows is the fact it is those receiving the money from BP who will end up paying taxes, as they're not exempt, as the government will consider it income, whether it's for a business or an individual.

That means money BP pays out will benefit them from a tax perspective, and the government gets a lot of that loss back from taxing the businesses and individuals receiving it.


  1. That's a good point, that their payouts are discounted to 70% when they eventually file their tax returns.

    Which is still a good thing because the last thing we want is for BP to go belly-up before everything has been cleaned up.

  2. taking from the rich and giving to the poor, I bet that robin hood would have a bunch of people that said no thanks if it were the same raw deal.

  3. It's not a raw deal. They money is to replace the money those people would have earned if they worked. They would have paid taxes on that money. Now what would have been bad is if the government would have taxed both BP and the receiver for the same money.

  4. sounds to me like "six of one or half a dozen of the other". Since BP is paying the money they pay less tax. The people receiving that money pay the tax that BP would have paid on that profit. The only difference is the tax rate (percentage) the government gets. In fact I'd bet that with all BP's deductions the tax man probably makes more for the people and businesses than they would have from BP anyway. At least the people and business receive money to survive, that's what counts most of all.

  5. Hey! Didn't this website have a post that said that BP was going bankrupt??!!!

  6. Yes it did. So did a lot of other hysterical commentators. As a result the share price fell to the point where it was a steal. My thanks.