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

Wed Feb 29, 2012 7:45pm EST
 
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By Braden Reddall

(Reuters) - Transocean Ltd RIGN.VX (RIG.N: Quote) may face $473 million in U.S. back taxes, according to its annual filing, though it also said it was cleared in a similar dispute dating back eight years, which may give its lawyers a useful precedent.

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 with the Internal Revenue Service (IRS).

"You can be a reasonable pig, but when you turn into a hog, the IRS comes after you," said Larry Langdon, a former IRS commissioner for large & mid-size business who is now at law firm Mayer Brown.   Continued...