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Transocean's lawyers defend company embroiled in Norway’s biggest ever tax scandal

27 June 2011

Salman Shaheen

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Transocean, the world’s largest offshore drilling company, has been hit with accusations that it dodged tax on NKr10 billion ($1.8 billion) of revenue.

Okokrim, the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime, states in its indictment that the Transocean parent company changed its country of registration from the US to the Cayman Islands in 1999.

The Cayman Islands has long been regarded as a jurisdiction which companies and individuals can use to avoid tax and keep their activities secret.

Ten years later, the ownership was transferred to a newly formed company registered in Switzerland.

"We are unambiguous about Switzerland's status - it is a tax haven with very deeply rooted legalised secrecy and lax regulation," said John Christensen, director of the Tax Justice Network.

In 1997, Transocean’s Norwegian company, TASA, sold six of its rigs to group companies registered in the Cayman Islands, and the remaining six in 2001.

"From 1996/97, Transocean Group’s master plan was to concentrate the ownership of the Group’s Norwegian rigs in companies registered in the Cayman Islands," Okokrim’s indictment states, arguing that the plan was tax motivated.

One of the indictment’s claims is that one rig, Polar Pioneer, which was owned by a Norwegian Transocean company and operated almost continuously on the Norwegian continental shelf, was towed outside the country’s territorial waters for eight hours and fifteen minutes in May 1999, during which time it was sold through a number of group companies to Transocean International Drilling, registered in the Cayman Islands.

"On May 21 May 1999, the rig was sold while the rig was located outside Norway and Norwegian tax jurisdiction," an attachment to Transocean Offshore Norway’s 1999 tax return recorded. "The sale is thus not subject to Norwegian taxation."

Okokrim asserts that the information the company provided was misleading and that the failure to provide details of the true legal status of the rig could have resulted in NOK 689 million of tax evasion.

Kjelle Inge Gade, a petroleum tax partner at PwC, said that it is standard practice to move maritime assets before selling them.

"It's common to ensure anything you're selling is not under any jurisdiction when you're selling it," said Gade. "It happens with ships which are not sold in harbour."

Transocean, however, had assets that had been in Norway for an extended period of time and advisers believe that it was unlikely the deal was arranged in that eight hour window as it would have taken considerable preparation.

The company might have to pay as much as NKr5 billion including interest, if the charges stick.

Transocean rejects all of Okokrim’s accusations and states that it intends to clear its name in court, which will result in Norway’s biggest ever tax evasion case.

"With respect to the claim related to the Polar Pioneer case, the court concluded that there was no tax evasion," a Transocean spokesman said. "Transocean believes it has provided the tax office with proper input for their assessments based on the requirements of law. The company looks forward to setting the record straight at the appropriate time in the legal process."

"The indictment is based on an inadequate comprehension of the facts; moreover in our opinion Økokrim base their conclusions on peculiar and original interpretations of Norwegian and international tax legislation. We believe we have a strong case," Erling  Lyngtveit, Transocean's defence counsel added.

Two tax advisers from Ernst & Young, Einar Brask and Klaus Klausen, are also named by Okokrim for allegedly aiding and abetting in "providing incorrect or incomplete information".

Brask refused to comment on the allegations.

Ernst & Young defended its employees in a statement.

"Based on Ernst & Young’s knowledge of the facts of the case and our assessment of the tax questions, we feel secure that our colleagues correctly related to the then applicable laws and regulations," the firm said. "We cannot see that there is any basis on which to indict them for the work they have done and we are therefore both surprised and disappointed that Okokrim has taken the step of issuing charges."

International Correspondents