Transocean may get smacked with a bill from the U.S. government for hundreds of millions of dollars in back taxes. The company blames accounting issues between its subsidiaries for the $473 million discrepancy noted in its annual filing, and also said it may have an advantageous precedent on its side since it won a similar dispute eight years.
Transocean, owner of the world’s largest offshore oil rig fleet, said the proposed adjustments for 2008 and 2009 were linked to accounting between subsidiaries for engineering services and transfer pricing for rig charters. The company said that if the government pursues the issue and is successful, its tax rate on global earnings for years after 2009 could “increase substantially.” Transocean’s overall tax expense for 2011 was $395 million. The company believes its tax returns are correct and plans to refute the claims, it said in a filing released this week.
The transfer pricing issue is about how to tax the earnings of foreign affiliates that transfer goods and services between themselves. Foreign affiliates can move profits from high-tax countries to low-tax countries and lower the amount of taxes a parent company owes the U.S. Internal Revenue Service by setting internal transfer prices higher or lower than market value.
Transocean has faced numerous tax disputes in the past, including a 2004 claim related to transfer pricing. Transocean said a U.S. tax judge cleared the company in that case and the adjustments were withdrawn.
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