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Caymans Move Cut Transocean’s Tax by $2 Billion, Magazine Says

Transocean Ltd., owner of the Deepwater Horizon offshore rig leaking oil in the Gulf of Mexico, reduced its U.S. tax bill by almost $2 billion since 1999 when it moved its headquarters to the Cayman Islands, a published report said.

Tax Notes magazine, a weekly journal published by Tax Analysts, said Transocean’s filings with the Securities and Exchange Commission show it cut its overall global tax rate to 16.9 percent in 2009 from 31.6 percent a decade earlier after moving from Houston.

Transocean is seeking to limit its liability for the ongoing oil-spill that resulted from the April 20 explosion of the Deepwater Horizon rig, which killed 11 workers. BP Plc, which owns the offshore oil lease and had contracted Transocean to drill the well, has primary statutory liability for spill clean-up and restoration costs that could top $23 billion, according to a June 2 Credit Suisse analyst report.

Transocean spokesman Guy Cantwell said he didn’t immediately have a comment on the tax issue.

Transocean was the first of five Texas-based oil drillers to use the so-called “corporate inversion” transaction later banned by Congress. The others were Noble Corp., Nabors Industries Ltd., Weatherford International Ltd., and Global Santa Fe Corp. Global Santa Fe merged with Transocean in November 2007.

“An unusually large concentration of inversion transactions have been conducted by companies in the oil services industry,” the article said.

Low-Tax Nations

Under the transaction, the companies established legal, so -called brass-plate headquarters in low-tax countries such as the Cayman Islands or Bermuda while usually keeping their operational headquarters based in the United States. The transactions were designed to minimize U.S. taxes on the companies’ overseas profits.

Companies were criticized by lawmakers such as Representative Richard Neal, a Massachusetts Democrat, and Iowa Senator Charles Grassley, an Iowa Republican, for using the corporate inversion transaction. Grassley in 2002 called the transaction “immoral.”

Congress banned the transaction in 2004 on a prospective basis. Efforts by the Senate to impose the changes retroactively to Transocean and the other companies were rejected by the House.

Transocean moved its headquarters to Switzerland in December 2008.

According to the Tax Notes article, Transocean earned $12.8 billion and paid $2.2 billion in taxes since 2000. Had the company earned those profits while paying its old 31.6 percent effective tax rate, the report said, it would have paid $1.9 billion more in taxes.

Its rivals reported similar results, the magazine said. Noble reduced its average tax rate to 17.9 percent from 27.6 percent and saved $678 million after moving to the Cayman Islands. Nabors saved $652 million in tax since its move to Bermuda, and Weatherford saved $923 million.

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