ON OIL COMPANY SUBSIDIES

As Oil Industry Fights a Tax, It Reaps Subsidies
David Kocieniewski, July 3, 2010 (NY Times)

"When the Deepwater Horizon drilling platform set off the worst oil spill at sea in American history, it was flying the flag of the Marshall Islands. Registering there allowed the rig’s owner to significantly reduce its American taxes.

"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…[and] BP was reaping sizable tax benefits from leasing the rig…[It 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."



"…[A]n examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process…[C]apital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry…[F]or many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by various credits…[Returns on] investments are often higher after taxes than before…

"Oil industry officials say that the tax breaks, which average about $4 billion a year according to various government reports, are a bargain for taxpayers…[and support] an industry that the officials say provides 9.2 million jobs…[They say] that even with subsidies, oil producers paid or incurred $280 billion in American income taxes from 2006 to 2008, and pay a higher percentage of their earnings in taxes than most other American corporations…"

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"But some government watchdog groups say that only the industry’s political muscle is preserving the tax breaks…[One 2009] 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…

"Some of the tax breaks date back nearly a century…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…[A] Saudi Arabian accounting maneuver…reclassified the royalties charged by foreign governments to American oil drillers…which entitled the companies to subtract those payments from their American tax bills. Despite repeated attempts to forbid this accounting practice, companies continue to deduct the payments. The Treasury Department estimates that it will cost $8.2 billion over the next decade…Over the last 10 years, oil companies have also been aggressive in using foreign tax havens…"