U.S. Oil Firms Could Be Harmed By Tax Plan

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Legislation being drafted in the Senate aimed at collecting more tax revenue from major oil companies could harm the three largest U.S. oil companies -- Exxon Mobil, Chevron and ConocoPhillips and put them at a competitive disadvantage in some countries against rivals Royal Dutch Shell and BP, the two largest European oil producers.

The legislation would change the way companies such as Chevron (CVX) and Exxon (XOM) would receive tax credits for payments to other governments, according to Bloomberg News. Senators drafting the bill are designing it so that it only applies to Chevron, Exxon, ConocoPhillips (COP), Shell and BP.

Still, Shell (RDS-A) and rival BP (BP) would be able to structure future investments under their parent companies, which are not subject to U.S. taxation, Bloomberg reported. The legislation seeks to raise $6.5 billion over the next decade by employing what some industry insiders view as a tax increase.

U.S. oil companies typically see their profits taxed by the government in which country those profits were earned. After the tax is paid, the U.S. firms receive a credit from the U.S. government so those earnings are not taxed twice. The Senate is expected to take up legislation next week that could raise overall taxes on oil and gas producers by $21 billion over the next decade.