Gulf Spill Yields Tax Talk About Multinationals

In the middle of all the “tax loopholes closing” that’s been going on in Congress, a big, fat one may have remained open. Sen. Max Baucus (D-MT), who chairs the powerful Senate Finance Committee, has opened an investigation into whether Transocean, Ltd., has been exploiting tax law loopholes by moving their headquarters overseas (spoiler alert, Sen. Baucus, they have, just as Apple, Microsoft, Dell, Pfizer and just about every other giant and profitable company in the US has done).

So why do we care now – and not, say, three months ago? Easy. Transocean Ltd. is the owner of the Deepwater Horizon rig that exploded in the Gulf in May. You know, the one that’s pouring millions of gallons of oil into our ocean?

Despite the fact that Deepwater really, really does care about all of the damage (I know this because they said so in their auto-response to me when they got my name wrong), they claim not to be a US company at all. Despite the fact that they have 1,300 workers in Houston – and just a handful abroad – they moved their corporate headquarters to Switzerland in 2008. They now have 2 corporate addresses in Switzerland, as well as one in the Caymans (another tax haven), listed on their web site. There’s one in the US, too, but the most prominent US address on the site is just a post office box in Houston.

Of course, moving your headquarters isn’t necessarily wrong. And this doesn’t mean that they did anything illegal. There’s nothing in the Tax Code to prohibit you from legally minimizing your tax burden. And Sen. Baucus has been careful to say that he’s not accusing Transocean, Ltd. of criminal wrongdoing.

It could just be that his curiosity has been piqued by all the publicity surrounding Transocean. But I’m guessing it’s something more.

You see, Sen. Baucus was instrumental in pushing through the American Jobs Creation Act of 2004. A big focus of that act was on preventing corporations from moving their operations abroad merely on paper just to save taxes. Some of the laws were tightened as a result of the law. But Congress didn’t approve some of the stronger language in the initial proposal. Afterwards, Sens. Grassley (R-IA) and Baucus made themselves sort of the unofficial watchdogs of the bill, vowing to keep pushing against what they saw as an unacceptable exploitation of our existing tax laws.

Baucus now wonders whether Transocean might have exploited those very laws. The unpopular move abroad kept the company rich – the company has reported billions of dollars in profits each year since the move. Transocean, for its part, makes no bones about why they picked up and left, first for the Caymans and then to Switzerland. They cited an improvement in “our ability to maintain a competitive worldwide effective corporate tax rate” as a primary reason for the move in the first place.

So, assuming that it’s legal and assuming that they’ve been upfront about everything, they’re basically doing the same thing as just about every other wildly profitable “US” company. Again, that begs the questions: Why Transocean? Why now?

Well, as much as people are bothered by Apple’s failure to deliver on the new iPhone and as many times as Microsoft’s Windows systems crash computers across the country, people don’t really hate those companies. They’re kind of ambivalent about them. But Transocean? Right now, a lot of people really, really hate them.

Of course, it’s not helping matters that reports have been swirling that Transocean stands to make money on the Gulf spill. The company reportedly took out a $560 million insurance policy on its Deepwater Horizon rig, a value much greater than the cost of the rig. Additionally, the gain in the policy is expected to surpass the share of claims that Transocean will pay out to victims of the spill (BP is contractually obligated to pay the rest). And unlike many of the Gulf spill victims, Transocean has already received most of its payout – Lloyds of London has reportedly paid out over $400 million to Transocean already. That means that they will walk away from this in the black. And folks whose lives have been upended are angry.

Now would be the perfect time to look into their finances. Who’s going to complain?

And, oh yeah… Remember that language that Baucus and Grassley couldn’t get through in 2004. It’s not 2004 anymore. Baucus is said to be questioning whether new legislation is warranted. I’ll bet you we’re going to find out that the answer is yes.

Kelly Phillips Erb

Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

See Full Bio