(MEDIA GENERAL) – According to a report from the New Orleans Times-Picayune, BP could receive billions of dollars in tax breaks following its settlement over claims from the 2010 oil spill in the Gulf of Mexico.
Last week, BP announced it had reached a settlement deal with five Gulf Coast states worth $18.7 billion. However, the Public Interest Research Group noted at least $13.2 million of the settlement is not defined as a penalty, meaning the oil company can file for tax breaks on that amount. According to the Times-Picayune report, federal tax law prevents companies from deducting penalties paid for breaking the law on taxes, but damage payments can be treated as a business expense.
Assuming BP files at the top corporate tax rate, the settlement only will cost BP approximately $14 billion.
The settlement must undergo a public comment period before being approved. A final settlement could be approved by early 2016.
Phineas Baxandall, a senior analyst for tax and budget policy from the PIRG, believes the settlement passes undue responsibility to taxpayers and believes the public should speak out to help push legislation to combat tax-deductible settlements.
“If there is enough outrage about this and people voice their discontent during that period, then I would hope the Justice Department would insert the few words it would take to save taxpayers billions of dollars,” Baxandall told the Times-Picayune. “(Currently), everyone wins except for the public.”
Critics sound off on Justice Department
The tactics used by BP in its oil spill settlement is nothing new to big business, according to policy critics. Several people have called for the U.S. Justice Department to bring harsher penalties on big businesses that use tax deductions to lower penalties.
Banks are some of the biggest offenders, particularly following the financial crisis in the last recession. Since 2008, Bank of America, JPMorgan Chase and Citigroup all have cut deals that saved them billions of dollars in tax breaks. Those three banks filed settlements in sum of more than $44 billion, but saved $15 billion in taxes.
Dennis Kelleher, chief executive of Better Markets, a nonprofit Wall Street watchdog group, put it bluntly while talking with Newsweek: “It’s PR crap. These banks caused the biggest crash since 1929 and they get civil settlements with immunity and tax deductions, all behind closed doors? It’s outrageous.”
Put more delicately, Brandon Garrett, a professor at the University of Virginia School of Law, told Newsweek: “It is very troubling when prosecutors announce blockbuster fines that are tax-deductible and potentially misleading to the public in terms of what the bottom line punishment actually is to the company.”