BP is poised for fresh controversy after it emerged today that the UK Treasury will lose hundreds of millions of pounds as a result of the oil clean-up in the Gulf of Mexico.
The cost of the clean-up has pushed BP into the red, meaning the oil company will be able to book a near-$10bn (£6.5bn) tax credit, slashing its tax bill in the US and Britain. The loss comes on top of a plunge in tax revenues after BP halted its dividend payouts to shareholders.
The news will dismay politicians in Westminster, since the coalition government needs all the tax revenues it can get as it introduces austerity measures to deal with the deficit. The majority of the tax credit is likely to relate to the US, but the exchequer is also likely to lose out badly. BP paid $8.4bn of corporate taxes last year, with roughly £930m going to the UK government. Tax experts reckon it paid a similar amount in US taxes.
While the spill will reduce the level of BP's corporate taxes, the news comes on top of the hundreds of millions lost to the exchequer in the form of lost dividend taxation.
Under fierce political pressure from Washington, BP scrapped its lucrative payouts to shareholders this year and there is currently no plan to reinstate payments.
BP announced today that it is making a $32.2bn provision for the cost of the spill caused by the explosion and subsequent sinking of the Deepwater Horizon drilling rig in April.
That pushed BP's second-quarter results into a record loss of $17bn, compared with a profit last year of $3.1bn.
The company explained, however, that the net impact on BP's bottom line will only be $22bn because the company will be able to record a $9.9bn tax credit. BP's UK tax bill will also be reduced, the firm added.
Both the US and UK governments receive hundreds of millions of dollars from the company in tax payments each year. News that BP will be able to write off against tax the cost of plugging the well, cleaning up the spill and compensating the thousands of people who have been affected is likely to anger politicians of all political hues.
Only the fines that might be imposed by the US authorities would definitely not be tax-deductible, according to tax experts.
Three years ago, aircraft manufacturer Boeing flew into a storm of protest when it sought to write off against tax a $615m fine levied by the department of justice that settled an investigation into the improper hiring of a Pentagon official and the theft of data from Lockheed Martin Corporation. The fine was levied in order for Boeing to avoid criminal charges. Three Republican senators wrote to the US attorney general at the time to say that allowing Boeing to deduct payments to the government "would be unacceptable".
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How much profit does BP make in a typical quarter?
It is wrong that UK is bearing financial burden but the US should. BP have spent far more than their legal liability already saving the US people billions (because once BP legal liability is reached the government starts paying). Then there are aspects of "fault" with the US regulators (e.g. not verifying plans, requiring drilling further offshore in much much deeper water than BP wanted), basically failing to regulate. Then there is the issue of responsibility of the other two companies involved who have so far done nothing to help sort out the disaster.
People should stop demonizing BP. The oil spill was an accident and they are trying to clean it up. We should remember that this is a major UK company and a lot of our pensions will no doubt be invested in it. We should stop shooting ourselves in the foot and stop bashing BP.
As for the activists that shut down the BP petrol forecourts, I hope they are arrested. They irresponsibly removed safety equipment from the pumps, idiots. Additionally they are damaging the UK economy and a UK company at a time when we just do not need it. Throw the book at them!
What perverse logic. The taxpayer is not 'picking up the bill' for the clean up. The profits of the company have declined and therefore it is obliged to pay less tax. If it did not get tax relief then the pension funds which are invested in BP would suffer and so pension fund investors would be 'picking up the bill' for the clean up. And if the company went bust then both the taxpayer and pension fund investors would be 'picking up the bill'.
@mike944
not demonising them at all here, they have set aside a huge amount of money for clean up, the point of this story is that they are going to claim a lot of it back through tax breaks, which we'll (joe taxpayer) have to subsidise.
in my humble opinion if they f*** up something this magnitude, then they should have to pay the full consequence and quite frankly they don't deserve any tax breaks. however the law says they are entitled to them.
At the end of the day, wherever we live we'll all be picking up the BP cleanup bill. They'll just go up in price and we pay. It's easy for them. Too easy. The law's at fault is what that is.
Big company uses tax system to screw the working man shock horror.
Sorry but this is not news. It happens all the time. The fact that they have been paying only a few hundred million in tax on tens of billions of pounds profit for all these years is a much bigger story, but one that is relevant to all big business.
Lets face facts, the bigger the company, the more "multi-national" it is, the less (percentage) tax they pay. We the tax payer have been subsidising the profit margins of big business since time began. We all pay a bigger percentage of incomes as tax than BP or any similar company does.
May be we should also consider the £1 million pound golden handshake and £10 million pound pension provision given to Tony Hayward for the wonderfully professional job he did when he was in charge of BP. We are paying for that out of taxes.
mike944
BP is not a "UK company", it is a "multi-national".
To be a UK company it would need to be owned by UK tax payers. Now who owns all those shares in BP?
spotthebollocks
Oh look I've just spotted the bollocks. The tax payer is indeed picking up the bill, whether it is lost revenue or directly out of our pockets, it is all the same. As for protecting pensions, well your investment value may go down and well as up, oh no wait a minute it won't will it, because the tax payer will underwrite the risk!!!
kolin
This paper has done nothing but bash BP. They have conveniently chosen which articles can and cannot be commented on. Why can we not comment on the BP/Greenpeace story? Is it because Greenpeace have acted like idiots and they don't want to attract negative comments?
sampsonscfc
BP's headquarters are in London.
I've spotted the bollocks:- All of it.
Well, no, the argument regarding a decline in taxes due to the fall in profits is reasonable and justified, and I commend it - but you then imply pension fund investors should be shielded from their economic duty is ridiculous.
If I own a company 100% and that company does something epically stupid do I deserve to be compensated?
Share holders are just that - they hold a share of the profits of the company they own, and they hold a share of the losses, too.
If the company's losses are absolute, so are it's shareholders'.
... the revolution gets closer! ...
That’s finding a story where there really isn’t one.
The tax system works by taxing profits. If a company makes a loss then it doesn’t pay tax, that’s the way corporation tax works. If they made an exception in this case then it opens up the potential for the treasury to not allow any costs in any company it associates to a poor decision. That would cripple the western worlds economy as no company in its right mind would stay.
If for example a director decides to spend £1m on marketing that didn’t increase sales and the revenue said that it wasn’t allowed then that would not be a ‘fair’ tax system. Or another example would be a plumber who got lost on his way to a customer, would the extra petrol he used become non deductable?
Also drawing parallels to the Boeing case where it tried to allow a federal fine for tax purposes is quite different. That was a fine and not a cost. A little like parking fines not being allowable for UK tax purposes. These are distinctly costs associated with the clean up and therefore part of the risk associated with business.
So whilst this case does seem to be unfair on the tax payer we should consider the wider implications of what this article is trying to say. When companies make losses all stakeholders make losses. Shareholders don’t receive dividends, customers suffer service declines or price increases, employees don’t get wage increases or get made redundant and the state loses tax. Nobody makes a profit, except in this case where people have to opportunity to litigate to their heart’s content and charge BP a fortune for services that would normally cost half as much.
In short – the state, through the receipt of taxes, share the risks and rewards of business. Effectively the state owns a 28% (in the UK) share of the risks and rewards. We (both USA and UK) have massively benefited from the rewards of the oil industry both through royalties and taxes over the last 50 years and should therefore accept that the fact they have ‘lost out’ on a bit of tax due to an accident. (lost out is the wrong wording – they never had in the first place so had nothing to lose)
...come the revolution -- ain't gonna be no more limousines!
Here's the bit I like. The BP Pension Fund doesn't (isn't allowed to?) invest in BP shares. So BP Pension Fund members are not impacted.
Result!!
what tom876 said
Paying less tax because you have higher costs isn't a tax break.
An accident?!
Have you read anything about this catastrophe at all?
From the Guardian 03 June 2010:
http://www.guardian.co.uk/business/2010/jun/03/gulf-oil-spill-senators-ask-bp-to-suspend-dividends?CMP=AFCYAH
Doesn't sound like an accident to me.
Furthermore, the depth at which Transocean - the one's who switched the alarm off in case it woke anyone up - was drilling was not 5,000 ft but 35,000 ft.
Slight difference!
Tom Bower lifted the lid on BP's engineering standards when he reported on Lord Browne's regime:
http://www.guardian.co.uk/commentisfree/cifamerica/2010/jun/02/sun-king-oil-john-browne
Cutting the workforce seems to have been Lord Browne's forté.
It's also qualified him for jobs with the Dave 'n Nick show:
http://www.guardian.co.uk/education/2009/nov/09/tuition-fees-rise-review-universities
All very accidental!
Oh, such a thing happened today, it hurts people. If nobody, seriously, maybe this will lead to species extinction. Do not know how much will the future of biological suffering, when clean-up can really clear what the current progress, I hope soon there is good news.Written byhttp://www.mbtflying.com/
Nothing here sounds unfair. The companies profits are low (infact, they are making a loss) so they won't pay on some tax.
The tax payer isn't picking up any "bill", just the tax collector will have a little less dosh this year.
Frankly, we all have a hand in this, I think the governments haven't done enough to help get it cleaned up - if we weren't so intent on using our 4x4's and second cars, this dependency on finding new oil wouldn't be raping our planet.
@Wyndley1857
What point are you trying to make? Are you seriously saying it was deliberate - because that's the opposite of accidental? If you're trying to imply it was caused by poor engineering, then say so - but it's still an accident.
Written by http://www.mbtflying.com - but not in any recognisable language?
Crashing silence from Halliburton (Cheney) and Deepwater (Chevron-Bush), directly involved, while BP forks out billions for the so-called accident. (Kick my behind please). Meanwhile Hayward gets sent to Siberia with a gobstopper, while those good old boys from Texas take over everything. This goes beyond the old axiom "You can get away with murder if you're cheeky enough"... Resembles all too much 7/11, where the same Remington ammunition style characters were involved with both sides in "the war on terrorism".
For Christ's sake wake up! ..These bastards are taking over the world!
@Mike944
I think you're missing the bigger picture here.
First, this "accident" was quite possibly the result of criminal negligence on BP's part through its culture of cutting corners and profit at all costs. It was entirely predictable that something of this kind of thing would happen given BP's atrocious safety record and the records of all the problems with this well in particular. Yet they kept pushing ahead with it and marginalising safety concerns.
Second, BP's involvement in many people's pension fund is no reason to not hold them accountable for this "accident". Although many of the pension holders might not realise it, there were plenty of warnings about BP irresponsibility if they had been paying attention.
Third, BP represents a way of life stuck in the past that is destroying our future and our children's future. We need to be moving away from fossil fuels as fast as we can possibly manage. If we don't, then we are not shooting ourselves in the foot, we are cutting our own throat.
Not to be too sympathetic too BP, but the company was expected to pay increasing amounts in the form of dividends to shareholders, and taxes (which might be viewed as dividends) to various governments. Maybe there were too many parties unrelated to the actual business expecting too much benefit from BP.
Operating on the bottom of the ocean is a hard thing to do, really it is like space exploration. Maybe it should be taken more seriously. I really don't remember seeing any articles about the Macondo well before it blew, even though it was in many ways an amazing achievement. Perhaps if a Guardian journalist was reporting on Briton's great achievement before the accident it might have been avoided.
That’s finding a story where there really isn’t one.
The tax system works by taxing profits. If a company makes a loss then it doesn’t pay tax, that’s the way corporation tax works.
Yes, but I think the point is that a massive loss will be taken in the current quarter, much greater than the current earnings, and that the deficit will be set against tax in future years.
So set aside the $32 billion now out of reserves, insurance payouts, and sales of capital assets, then get massive tax refunds next year and the year after. Could be very good for BP shareholders.