BP can deduct billions from its oil spill settlement, tax experts say
Apr 5 2016, 17:44 ET | About: BP p.l.c. (BP) | By: Carl Surran, SA News Editor [Contact this editor with comments or a news tip]
BP will be able to deduct a big chunk of its $20B Gulf of Mexico oil spill settlement for tax purposes, effectively slicing billions of dollars off the amount it will actually pay, tax and accounting experts tell WSJ.
Under U.S. law, companies are not allowed to deduct fines or penalties they pay as part of a settlement, but only $5.5B of the $20B cost of the settlement is a fine; the remainder, including the billions of dollars BP will pay to the U.S. and five Gulf states to cover environmental damage, can be classified as “ordinary business expenses,” which are deductible.
The U.S. Public Interest Research Group estimates BP will be able to deduct ~$15.3B of its expenses from the settlement, adding the deduction allows the company to earn a “a tax windfall for what amounts to gross negligence."