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Big Oil’s $121 billion bailout

by Lukas Ross, climate and energy program manager

Friends of the Earth
7 min readJun 14, 2021


One of the biggest presents Trump ever sent to Big Oil was hidden on page 157 of the Tax Cuts and Jobs Act, the GOP tax bill passed at the end of 2017. Practically unnoticed at the time, the Biden administration has a new plan to close this loophole and raise $84.7 billion from the biggest of the Big Oil companies over the next decade.

Separate from this sum is an additional $36.5 billion the Biden administration wants to raise from repealing fossil fuel tax breaks. These are the special carve outs for oil, gas and coal that allow the costs of these investments to be more quickly deducted. In some cases, these gimmicks have been around for over a hundred years.

This story involves an alphabet soup of tax terminology, with phrases and acronyms like GILTI, FOEGI, FORI, and Subpart F. But underneath the jargon, there is a grand total of $121 billion in polluter welfare that could soon be eliminated to help pay for an infrastructure plan that puts workers and the climate first.

Getting to Know the Global Intangible Low-Tax Income Regime

In order to understand the scope of this $84.7 billion subsidy, you have to understand GILTI. That’s the Global Intangible Low-Tax Income regime. This is the international tax system put in place by the Trump tax cut.

Prior to 2017, corporations based in the US with subsidiaries abroad had their foreign income taxed under a system called deferral. This allowed US companies to avoid paying taxes on overseas profits until after those profits were repatriated, at which point any taxes paid to a foreign government were deducted from their US tax bill. The abuses under this system were predictable. Massive corporations hoarded profits abroad in tax havens, avoiding their fair share of taxes while cynically lobbying for repatriation holidays that would allow those profits to return home for a fraction of the taxes due.

The GOP tax bill took a broken system and made it worse by replacing deferral with GILTI. In essence, GILTI is a minimum tax on the foreign profits of US companies. It works according to a complicated equation that takes overseas corporate profits, subtracts a portion of investment in tangible assets like factories, and then allows companies to deduct half the income left over. The resulting income is then subject to US taxes minus credits for any taxes paid to foreign governments. Combined with the current US corporate tax rate of only 21 percent, the result of GILTI is a paltry tax on foreign profits no higher than 10.5 percent that can in many cases be zero percent.

GILTI is a disaster for a variety of reasons. Firstly, the tax rate is too low. There is no real reason any US company should pay lower taxes on foreign profits than on domestic profits. This is a simple matter of fairness. Secondly, GILTI offers a major incentive for outsourcing. The deduction for tangible Qualified Business Asset Income, or QBAI, literally gives US companies a tax cut for building factories and the like in other countries and shipping jobs overseas.

Unfortunately, one of GILTI’s biggest scandals has gone unnoticed: it is that Foreign Oil and Gas Extraction Income, or FOEGI, is explicitly exempt under the 2017 law. This allows giant companies like Exxon and Chevron to profit from extraction abroad and bring the profits home — all without paying a dime in US taxes.

Closing this loophole would cost a handful of huge oil companies an extra $84.7 billion in taxes over the next decade, according to an official estimate for the US Department of Treasury. The new plan from the Biden administration is to simply force income from foreign oil and gas extraction into the GILTI calculation. It would also further modify GILTI by eliminating the incentive for offshoring and reducing the deduction from 50 percent to only 25 percent. Coupled with the proposed higher corporate tax rate of 28 percent, the result for Big Oil and every other business would be a fairer system with the tax on foreign profits closer to the tax on domestic profits.

Last month, the President of the American Petroleum Institute admitted during a bruising testimony before the House Oversight Committee that the oil and gas industry was “certainly fine being treated like every other industry.” He may soon find out what that’s like.

A GILTI Conscience

Given ongoing discussions about how to raise revenue for pending infrastructure legislation, it should come as no surprise that some of the most potentially affected companies have begun lobbying to protect the Trump tax cuts and their carveout for oil.

Here are some highlights from the lobbying reports of the first three months of 2021:

  • Chevron, the second largest oil company in the US, reported lobbying both the House and the Senate on such issues as “Foreign Oil & Gas Extractive Income” and “Global Intangible Low-Tax Income” — in other words, on GILTI and on the specific category of income exempt from GILTI.
  • Conoco, the largest independent oil driller in the US with global operations as far flung as Malaysia and Libya, was even more explicit. The company reported lobbying of both the House and the Senate on “Tax Cuts and Jobs Act International Provisions: global intangible low-taxed income and foreign tax credit regime” and “Protection of 21% Corporate Tax Rate in the Tax Cuts and Jobs Act.”

Subpart F

The exemption under GILTI is specifically for foreign oil and gas extraction income. There is however, an entire other category of income dubbed Foreign Oil Related Income, or FORI. This is overseas income primarily from the transportation and refining of oil and gas and the sale of refined products. The treatment of this income was also modified substantially to the benefit of polluters by Trump and the GOP.

Prior to 2017, this income was taxed under something called Subpart F. The best way to understand Subpart F is as an anti-abuse backstop to the deferral system. It requires that certain types of overseas profits that could likely be shifted around to avoid US taxes be taxed immediately at the full US rate (minus foreign tax credits), rather than being subject to the deferral system. Before the Tax Cuts and Jobs Act, income from US companies transporting and refining oil abroad was included in Subpart F.

At a ten year cost of $4 billion to US taxpayers, the GOP tax bill moved this income from Subpart F into the new GILTI regime. This was generous to Big Oil for two reasons. Firstly, GILTI includes a deduction for tangible assets, which means that capital intensive projects like pipelines and refineries make for bigger deductions and thus lower taxes. Secondly, the GILTI rate on foreign profits remains only 10.5 percent, far lower than the full corporate tax rate of 21 percent that would be paid under Subpart F.

The current proposal from the Biden administration would increase taxes on FORI by virtue of increasing the corporate tax rate and improving the GILTI system. It would not, however, return this income to its pre-2017 status quo. That’s because the Biden proposal still includes a 25 percent as opposed to a 50 percent deduction for GILTI. Therefore, the surest way to guarantee that FORI income is taxed at the same rate as domestic profits is to simply return it to Subpart F.

As egregious as the GOP’s treatment of oil in their tax bill may have been, the final outcome was almost substantially worse. That’s because the initial bill passed by the House in November 2017 didn’t just move FORI from Subpart F into GILTI — it called for eliminating it from GILTI as well. This would have effectively exempted every segment of the oil industry from any taxes on overseas profits. The final deal between House and Senate republicans may have been a compromise, but nevertheless this compromise still delivered the industry a massive win.

Time to End Big Oil

After nearly four years of the Trump tax cut, it is time to begin repairing the damage. The good news is that many of the necessary bills have already been introduced in Congress. Using the process of reconciliation, these measure and much more could be passed through the Senate:

  • The End Polluter Welfare Act from Senator Sanders and Representative Omar contains the widest list of oil, gas and coal subsidies. This includes century old tax code subsidies like intangible drilling costs and the depletion allowance as well as newer gimmicks like royalty relief that allow oil and gas to be drilled for free from the Gulf of Mexico. It would also eliminate the GILTI exemption for oil extraction.
  • The No Tax Breaks for Outsourcing Act from Senator Whitehouse and Representative Doggett would reverse the damage of the GOP tax cut by ensuring that all foreign profits are taxed at at least the same rate as domestic profits. It would also eliminate the GILTI exemption for income from extraction and restore refining income to its treatment under Subpart F.
  • The Clean Energy for America Act from Senator Wyden was passed by the Finance Committee in May. It would overhaul the current system of renewable energy tax credits and create a technology neutral framework under which all zero-emissions sources could qualify for incentives. Although it includes potential lifelines for fossil fuels like carbon capture and hydrogen, it would also eliminate a suite of fossil fuel tax subsidies. In addition, it would end the GILTI exemption for extraction and return refining to Subpart F.



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