Wednesday, July 14, 2010

Oil Spill Means Less Taxes for BP (NYSE:BP)

Although BP (NYSE:BP) is suffering some financial pain from the Gulf of Mexico oil spill, it's going to be alleviated a lot by the shrinking tax burden they will have to pay as a result of the growing number of pay outs linked to claims of damages from businesses and individuals.

Not only will this be true in the U.S., but it'll also be true in Britain too.

In the U.S., BP paid taxes at a 33 percent rate. Assuming that will be the same this year, they could not only save billions in taxes for the year, but they could save on past taxes if they experience losses.

What will probably end up stirring some people up is while BP will be getting tax breaks, that will be made up on revenue from taxes from the people and businesses receiving the payouts from BP, as receiving the BP money is considered a taxable event.

Overall this isn't a bad thing for BP, as the healthier they are financially the better they'll be able to pay out cleanup costs, claims and judgements against them, without declaring bankruptcy.

As far as the $20 billion escrow fund, that won't be deductible for BP until they pay out specific funds from it to claimants. So the approximate $5 billion they pay a year over the next four years won't be tax deductible for them until the actual claims are paid.

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