Deepwater Rig Operator Transocean Used Tax Havens To Lowers Its Tax Rate By Almost 15 Points

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"Deepwater Rig Operator Transocean Used Tax Havens To Lowers Its Tax Rate By Almost 15 Points"

When the Deepwater Horizon rig first exploded in the Gulf of Mexico, my ThinkProgress colleague Zaid Jilani noted that the company that operates the rig — Transocean, Ltd. — located its headquarters in Zug, Switzerland, in order to avoid U.S. corporate taxes. “Only a dozen of Transocean’s employees are physically located in Zug — more than 1,300 are based in Houston, Texas,” Jilani pointed out.

But this was only the beginning when it comes to Transocean’s steps to evade U.S. taxes. An article by Martin Sullivan in the latest issue of Tax Notes magazine lays out the dramatic drop in Transocean’s effective tax rate (along with a rising amount of income) as it moved its headquarters from the U.S. to the well-known tax haven of the Cayman Islands and finally to Switzerland:

Sullivan wrote:

The transaction in which a corporation changes its legal domicile from the United States to a foreign jurisdiction is referred to as an inversion or a corporate expatriation. These tax-motivated restructurings occur with little or no real change in day-to-day business operations. Top executives, key personnel, and all significant business operations in the United States before the transaction remain in the United States…An unusually large concentration of inversion transactions have been conducted by companies in the oil services industry.

As the table shows, Transocean was able to lower its effective tax rate to 16.9 percent from 31.6 percent, a drop of 14.7 percentage points. That actually makes Transocean’s tax dodging a bit lackluster compared to that of other corporations, such as General Electric and Pfizer, which reduce their tax rates by more than twenty points through planting profits offshore.

Once upon a time, even Republicans felt that such tax evasion was not a good thing. In 2002, in fact, Sen. Chuck Grassley (R-IA) said that “these expatriations aren’t illegal. But they’re sure immoral.” Now, however, Grassley considers cracking down on tax havens “shooting ourselves in the foot.”

Sullivan noted that one way to deal with tax avoidance like that employed by Transocean is to implement reforms suggested by Rep. Lloyd Doggett (D-TX), which “would be consistent with the president’s goals of tilting tax benefits away from fossil fuels and of raising revenue by suppressing aggressive tax avoidance by U.S. multinationals using shell companies in tax havens.”

Update

Transocean currently has $698 million in tax disputes with the U.S. government that are currently unresolved, according to the New York Times.

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