Reference no: EM132465034

Transocean has a history of being an aggressive innovator in saving taxes, as illustrated by its initial move to the Grand Cayman Islands in 1999. its subsequent move to Switzerland in 2008. and its creation of a Master Limited Partnership subsidiary in 2014. Table 2 provides an overview of the taxes paid by Transocean during each of these periods.

• The Tax Cuts and Jobs Act of 2017 significantly reduced the U.S. corporate tax rate, but it is uncertain whether the lower rate will be permanent and whether this will eliminate inversion activity. Although there have only been around 60 inversions. it is unclear if any of these companies will reestablish headquarters in the U.S. due to the lower tax rate.

CASE REQUIREMENTS

Question I. Tax inversions have occurred infrequently over the past 30 years. Describe a tax invasion and the factors that impact a company's decision to complete a tax inversion.

Question 2. The earliest inversions were usually in tax haven countries. The companies subsequently relocated their headquarters to Europe. Why did these companies decide to move headquarters to European countries?

Question 3. Most recent inversions either meet a substantial activities test or are accomplished through mergers. What companies are the most likely targets for these types of inversions?

Question 4. A primary benefit of an inversion is avoiding U.S. tax on foreign-source income. How do multinational companies also use inversions to reduce U.S. tax on U.S.-source income?

Question 5. Calculate Transocean's effective tax rate for each of the four years (1998, 2000, 2009. 2015). Estimate the dollar amount of the annual reduction in taxes for the initial move to the Grand Cayman Islands.

Question 6. The Congressional Budget Office (2017) reports that 60 inversion transactions have occurred. The CBO estimates that the average annual reduction in U.S. tax expense for these companies is $65 million. What is the amount of total annual revenue loss to the U.S. government? What is the amount of total annual revenue loss to the U.S. government as a percentage of total corporate taxes (search for the total corporate taxes in the CBO report or other online source)?

Question 7. The U.S. recently reduced the top statutory corporate tax rate from 35 percent to 21 percent. In addition, the U.S. changed from a global to a territorial tax system for multinational corporations. Evaluate the likely effects of these tax law changes on inversion activities.

Question 8. Should companies be allowed to enter into inversions? Consider the perspective of shareholders and the U.S. Treasury in developing your response. Do you believe the changes in U.S. tax law to lower corporate taxes will eliminate inversion activity permanently?