1. BP will establish a $20 billion fund, but will pay only a third ($7 billion) into it during 2010.
2. BP is a British corporation, but has a very large operating entity in the US but only about 30% of it's income is derived from the US .
3. By Generally Accepted Accounting Principles (GAP), BP must book the entire $20 billion expense in the year accrued. Therefore, they will book a $20 billion expense in 2010, reducing their US tax liability by $7 billion.
4. President Obama also convinced this massive corporation to show their concern for the "small people" by withholding dividends to their shareholders for the last 3 quarters of 2010. This reduces their outward
cash flow by about $7.5 billion, including approximately 40% of that amount to US citizens. Assuming that the Bush tax cuts will survive through 2010, the US Treasury will lose another $450 million in taxes on that amount. Actually, a little less as some shares are owned by non-taxable funds such as pension plans and endowments. The US Treasury isn't the only entity losing money on this deal, many shareholders and retirement plans (401Ks, etc.) will lose those dividends.
A table helps present the data well:
|BP's Cash Flow|
|Rescue effort escrow funding||-$7 billion|
|Dividend savings||+$7.5 billion|
|Tax savings on reduced earnings||+$7 billion|
|Net cash flow||+$7.5 billion|
|US Treasury Tax Receipts|
|Reduced BP Corporate income tax||-$7.5 billion|
|Reduced shareholder tax on investments||-$0.45 billion|
|Net impact to tax receipts||-$7.95 billion|