Owner of Gulf oil spill rig saves millions in tax thanks to Swiss headquarters

Swiss retreat helps Transocean save millions

STEINHAUSEN, Switzerland — In the foothills of the Swiss Alps four new steel-gray towers rise from what used to be a grassy field. One of them is home to Transocean Ltd., the world’s biggest offshore drilling contractor and owner of the Deepwater Horizon rig that exploded in the Gulf of Mexico, leading to one of the worst oil spills in history.

Low taxes prompted the decision two years ago to move to landlocked Switzerland: The company paid 16 percent tax on its $4.4 billion global operating income last year. The regular corporate income tax in the United States stands at about 35 percent.

The company, once based in Delaware, shifted its head office from the Cayman Islands, where it has been since 1999, to the central Swiss canton (state) of Zug. It joined other international corporations flocking there in search of tax advantages — and provoking simmering resentment among residents forced to move out in search of affordable housing, says Rupan Sivaganesan, a member of the cantonal parliament.

“For years the canton has been luring companies with low taxes,” said Sivaganesan, adding that many corporate headquarters create hardly any jobs.

Anger among Zug residents and environmental groups is expected to boil into open protest Friday when Transocean’s board comes to town for its annual shareholders meeting.

“We want them to stop deepwater drilling and to clean up the damage they caused in the Gulf of Mexico,” said Sivaganesan, who holds one of 12 Green Party seats in the 80-member parliament.

At the time of its move, Transocean said shifting its head office would “improve our ability to maintain a competitive worldwide effective corporate tax rate.”

The move made sense for a major player in the oil and gas industry, according to Gerhard Roth, a Swiss corporate tax expert and managing partner at law firm GHR. Corporations in the Cayman Island — itself a fiscal paradise — have come under increasing pressure from Washington whereas Switzerland has a long-standing treaty with the United States preventing double taxation.

Some of the world’s biggest commodities trading and mining companies are based in Zug. Among them are Glencore International, the privately owned supplier of raw materials founded by one-time tax fugitive Marc Rich. Others include mining giant Xstrata, British pharmacist Alliance Boots and the international arm of California biotech company Amgen.

“Zug has very low taxes and it’s very generous in granting companies holding status,” said Roth. “That’s why those companies are headquartered in Zug.”

A 2005 survey by research firm BAKBASEL found Zug had the lowest effective tax burden for companies and high earners of any Swiss canton, and far below that of other European countries or the United States.

The canton levies no tax on earnings generated abroad, and holding companies that receive their income in the form of a dividend from an offshore subsidiary are freed from paying Swiss federal tax as well, according to Roth.

This means that while Transocean’s many subsidiaries are liable for local income tax in the countries they operate, the holding company in Switzerland pays no additional corporate tax on foreign earnings.

Moving corporate headquarters abroad, a process known as “inversion,” was popular among large U.S. companies in the late 1990s but effectively outlawed by the Jobs Act of 2004, according to Larry R. Kemm of Florida law firm Sharp & Kemm.

The patriotic mood after 9/11 also made it difficult for American companies to shift their headquarters abroad, said Kemm. “They’re trying to not only avoid U.S. taxes but effectively become known as something other than a U.S. company.”

Transocean itself has warned shareholders that there are efforts by U.S. lawmakers to introduce legislation ensuring companies with a significant U.S. presence are considered domiciled there for tax purposes.

In Switzerland, there are signs that some are beginning to question the advantages of giving tax breaks to large foreign companies.The arrival of Transocean and others has transformed once sleepy villages around Lake Zug into international business hubs complete with gleaming offices and penthouse apartments. In Steinhausen — population 9,000 — only “Chalet Heidi” near the train station and the distant snow-capped peaks remind visitors that they are in Switzerland, not Silicon Valley.

Only a dozen of Transocean’s 18,000 employees work in Zug, company spokesman Guy Cantwell told The Associated Press. About ten executives are based in its management offices in Geneva, while the rest are dotted around the world including 1,300 in Houston.

Transocean claims 19 of the past 23 world records for ultra-deep water drilling and in its office lobby proudly displays the scale model of an oil exploration ship jointly operated with Norway’s Statoil Hydro.

The two companies were warned by Norwegian authorities two years ago that they were not doing enough to protect against possible gas blowouts on a platform in the Arctic Sea, according to Scandinavian Oil and Gas magazine. Such a catastrophic failure is what happened on the Deepwater Horizon last month and investigators are now trying to determine why.

Lawsuits have piled up against Transocean and BP, which leased the rig and is trying to shut off a well that’s spewing 210,000 gallons of crude into the Gulf of Mexico each day. Transocean said Thursday it will petition a federal court in Houston to cap its overall liability from the incident at less than $27 million.

Online:

Transocean website: www.deepwater.com

Scandinavian Oil and Gas magazine: bit.ly/c93j5S