Transocean says may face $473 million U.S. tax bill

Wed Feb 29, 2012 4:44pm EST
 

By Braden Reddall

(Reuters) - Transocean Ltd RIGN.VX (RIG.N: Quote) may face another $473 million in potential U.S. back taxes, according to its annual regulatory filing, in which it revealed that a judge partly cleared the company in a similar tax dispute dating back eight years.

Transocean, owner of the world's largest offshore oil rig fleet, said the latest assessment received this month for 2008 and 2009 related to accounting between subsidiaries, for both engineering services performed between them and transfer pricing for rig charters.

"If the authorities were to continue to pursue these positions with respect to subsequent years and were successful in such assertions, our effective tax rate on worldwide earnings with respect to years following 2009 could increase substantially," said Transocean, which booked an overall 2011 income tax expense of $395 million.

The $473 million of proposed adjustments exclude interest, but the company said in the filing released this week that it believed its tax returns were correct and planned to defend against the claims.

The company declined to comment further on Wednesday.

Problems with transfer pricing, generally, have grown with globalization of the world economy. The issue involves how to tax the earnings of foreign affiliates that transfer goods and services between themselves.

By setting internal transfer prices higher or lower than market value, foreign affiliates can shift profits from high-tax countries to low-tax countries, reducing the parent company's overall tax burden.

This is an especially important issue for rig contractors, since most their assets are not fixed in one place.   Continued...