Friday, June 3, 2011

Transocean

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While Senate Finance Committee Chairman Sen. Max. Baucus (D- Montana) announced June 30 that his committee is opening an investigation on the tax practices of Transocean Ltd., the Switzerland-based offshore drilling contractor embroiled in the Gulf of Mexico oil spill, it seems that the Internal Revenue Service and taxing authorities in two other nations have already beaten the Senator to the punch.

The committee will investigate Transocean for what the company has termed "redomestication," and what everybody else calls restructuring, due to Transocean's serial relocation of its headquarters to low-tax jurisdictions. The company announced in 2008 that it was moving the incorporation of its group holding company to Switzerland from the Cayman Islands, where it had been since 1999 when it moved from the state of Delaware.

However, Transocean is already in the hot seat for other international tax issues, some of which may end in litigation.

In the company's quarterly report filed with the U.S. Securities and Exchange Commission May 5, Transocean described that it was facing a total of $357 million in transfer pricing adjustments from the IRS for 2004-07, another possible $320 in IRS adjustments related to the disposition of a subsidiary as well as $455 million in assessments that the company received in Norway, and $292 million in assessments, penalties, and interest it received from Brazil's taxing authority.

While the company's disclosures were cagey--detailing taxing authority assessments in Norway and Brazil while specifying only income adjustments in the United States and omitting information on interest and penalties in the U.S. and Norwegian assessment amounts--it is clear that Transocean is facing tax problems in the range of a billion dollars in the three countries combined.

In addition to the Norwegian assessments, Transocean is facing criminal tax charges in that country and said it may be required to post as much as $973 million in order to protest the assessments in court.

Transocean also said it anticipates that a transfer pricing dispute with the IRS for 2004-05, which made a $79 million income adjustment for certain charters of drilling rigs between subsidiaries for those years, will end up in court.

Transocean, the world's largest oil drilling contractor, announced in 2008 that it was moving its headquarters to Switzerland from the Cayman Islands.

--Tamu N. Wright, BNA Tax Management Transfer Pricing Report senior editor

Each month Tamu scans SEC filings for the latest company reports on transfer pricing and permanent establishment issues. To access the Report free for 15 days, register at: http://www.bnatax.com/Transfer-Pricing-Report-p7899/ 

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