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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Taxes |
Income Taxes | Note 6—Income Taxes Tax rate—Transocean Ltd., a holding company and Swiss resident, is exempt from cantonal and communal income tax in Switzerland, but is subject to Swiss federal income tax. At the federal level, qualifying net dividend income and net capital gains on the sale of qualifying investments in subsidiaries are exempt from Swiss federal income tax. Consequently, Transocean Ltd. expects dividends from its subsidiaries and capital gains from sales of investments in its subsidiaries to be exempt from Swiss federal income tax. Our provision for income taxes is based on the tax laws and rates applicable in the jurisdictions in which we operate and earn income. The relationship between our provision for or benefit from income taxes and our income or loss before income taxes can vary significantly from period to period considering, among other factors, (a) the overall level of income before income taxes, (b) changes in the blend of income that is taxed based on gross revenues rather than income before taxes, (c) rig movements between taxing jurisdictions and (d) our rig operating structures. Generally, our annual marginal tax rate is lower than our annual effective tax rate. The components of our provision (benefit) for income taxes were as follows (in millions):
|  | Years ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Current tax expense |  | $ | 267 |  | $ | 183 |  | $ | 386 |
Deferred tax benefit |  | (9 | ) | (133 | ) | (62 | )
Income tax expense |  | $ | 258 |  | $ | 50 |  | $ | 324 |
The following is a reconciliation of the differences between the income tax expense for our continuing operations computed at the Swiss holding company federal statutory rate of 7.83 percent and our reported provision for income taxes (in millions):
|  | Years ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Income tax expense at the Swiss federal statutory rate |  | $ | 130 |  | $ | 68 |  | $ | (426 | )
Taxes on earnings subject to rates different than the Swiss federal statutory rate |  | 185 |  | 141 |  | 221 |
Taxes on impairment loss subject to rates different than the Swiss federal statutory rate |  | 5 |  | 5 |  | 409 |
Taxes on asset sales subject to rates different than the Swiss federal statutory rate |  | 9 |  | (1 | ) | — |
Taxes on litigation matters subject to rates different than the Swiss federal statutory rate |  | (33 | ) | 59 |  | 78 |
Changes in unrecognized tax benefits, net |  | (62 | ) | (179 | ) | 40 |
Change in valuation allowance |  | 37 |  | 1 |  | 19 |
Benefit from foreign tax credits |  | (18 | ) | (38 | ) | (28 | )
Taxes on asset acquisition costs at rates lower than the Swiss federal statutory rate |  | — |  | — |  | 8 |
Other, net |  | 5 |  | (6 | ) | 3 |
Income tax expense |  | $ | 258 |  | $ | 50 |  | $ | 324 |
Deferred taxes—The significant components of our deferred tax assets and liabilities were as follows (in millions):
|  | December 31, |
|  | 2013 |  | 2012 |
Deferred tax assets |  |  |  |  |
Net operating loss carryforwards |  | $ | 369 |  | $ | 380 |
Tax credit carryforwards |  | 21 |  | 41 |
Accrued payroll expenses not currently deductible |  | 98 |  | 95 |
Deferred income |  | 62 |  | 86 |
Valuation allowance |  | (247 | ) | (210 | )
Loss contingencies |  | 36 |  | — |
Professional fees |  | 89 |  | 66 |
Other |  | 28 |  | 43 |
Total deferred tax assets |  | 456 |  | 501 |
Deferred tax liabilities |  |  |  |  |
Depreciation and amortization |  | (650 | ) | (688 | )
Other |  | (29 | ) | (37 | )
Total deferred tax liabilities |  | (679 | ) | (725 | )
Net deferred tax liabilities |  | $ | (223 | ) | $ | (224 | )
At December 31, 2013 and 2012, our deferred tax assets include U.S. foreign tax credit carryforwards of $21 million and $41 million, respectively, which will expire between 2018 and 2023. The deferred tax assets related to our net operating losses were generated in various worldwide tax jurisdictions. At December 31, 2013, the tax effect of our Norwegian and Brazilian net operating losses, which do not expire, was $161 million and $49 million, respectively. At December 31, 2012, the tax effect of our Norwegian and Brazilian net operating losses, which do not expire, was $178 million and $55 million, respectively. The valuation allowance for our non-current deferred tax assets was as follows (in millions):
|  | December 31, |
|  | 2013 |  | 2012 |
Valuation allowance for non-current deferred tax assets |  | $ | 247 |  | $ | 210 |
Our deferred tax liabilities include taxes related to the earnings of certain subsidiaries that are not permanently reinvested or that will not be permanently reinvested in the future. Should our expectations change regarding future tax consequences, we may be required to record additional deferred taxes that could have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. We consider the earnings of certain of our subsidiaries to be indefinitely reinvested. As such, we have not provided for taxes on these unremitted earnings. Should we make a distribution from the unremitted earnings of these subsidiaries, we would be subject to taxes payable to various jurisdictions. At December 31, 2013, the amount of indefinitely reinvested earnings was approximately $2.5 billion. If all of these indefinitely reinvested earnings were distributed, we would be subject to estimated taxes of $180 million to $250 million. Unrecognized tax benefits—The changes to our liabilities related to unrecognized tax benefits, excluding interest and penalties that we recognize as a component of income tax expense, were as follows (in millions):
|  | Years ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Balance, beginning of period |  | $ | 382 |  | $ | 515 |  | $ | 485 |
Additions for current year tax positions |  | 24 |  | 58 |  | 45 |
Additions for prior year tax positions |  | 10 |  | 25 |  | 29 |
Reductions for prior year tax positions |  | (72 | ) | (24 | ) | — |
Settlements |  | (6 | ) | (120 | ) | (42 | )
Reductions related to statute of limitation expirations |  | (12 | ) | (72 | ) | (2 | )
Balance, end of period |  | $ | 326 |  | $ | 382 |  | $ | 515 |
The liabilities related to our unrecognized tax benefits, including related interest and penalties that we recognize as a component of income tax expense, were as follows (in millions):
|  | December 31, |
|  | 2013 |  | 2012 |
Unrecognized tax benefits, excluding interest and penalties |  | $ | 326 |  | $ | 382 |
Interest and penalties |  | 176 |  | 199 |
Unrecognized tax benefits, including interest and penalties |  | $ | 502 |  | $ | 581 |
In the years ended December 31, 2013, 2012 and 2011, we recognized interest and penalties of $23 million, $56 million and $20 million, respectively, associated with our unrecognized tax benefits and recorded as a component of income tax expense. As of December 31, 2013, if recognized, $502 million of our unrecognized tax benefits, including interest and penalties, would favorably impact our effective tax rate. It is reasonably possible that our existing liabilities for unrecognized tax benefits may increase or decrease in the year ending December 31, 2014, primarily due to the progression of open audits and the expiration of statutes of limitation. However, we cannot reasonably estimate a range of potential changes in our existing liabilities for unrecognized tax benefits due to various uncertainties, such as the unresolved nature of various audits. Tax returns—We file federal and local tax returns in several jurisdictions throughout the world. With few exceptions, we are no longer subject to examinations of our U.S. and non-U.S. tax matters for years prior to 2006. Our tax returns in the major jurisdictions in which we operate, other than Norway and Brazil, which are mentioned below, are generally subject to examination for periods ranging from three to six years. We have agreed to extensions beyond the statute of limitations in two major jurisdictions for up to 19 years. Tax authorities in certain jurisdictions are examining our tax returns and in some cases have issued assessments. We are defending our tax positions in those jurisdictions. While we cannot predict or provide assurance as to the final outcome of these proceedings, we do not expect the ultimate liability to have a material adverse effect on our consolidated statement of financial position or results of operations, although it may have a material adverse effect on our consolidated statement of cash flows. Norway tax investigations and trial—Norwegian civil tax and criminal authorities are investigating various transactions undertaken by our subsidiaries in 1999, 2001 and 2002 as well as the actions of certain employees of our former external tax advisors on these transactions. The authorities issued tax assessments as follows: (a) NOK 684 million, equivalent to approximately $112 million, plus interest, related to the migration of our subsidiary that was previously subject to tax in Norway, (b) NOK 412 million, equivalent to approximately $68 million, plus interest, related to a 2001 dividend payment and (c) NOK 43 million, equivalent to approximately $7 million, plus interest, related to certain foreign exchange deductions and dividend withholding tax. We have provided a parent company guarantee in the amount of approximately $115 million with respect to one of these tax disputes. Furthermore, we may be required to provide some form of additional financial security, in an amount up to $212 million, including interest and penalties, for other assessed amounts as these disputes are appealed and addressed by the Norwegian courts. The authorities are seeking penalties of 60 percent on most but not all matters. In November 2012, the Norwegian district court in Oslo heard the case regarding the disputed tax assessment of NOK 684 million related to the migration of our subsidiary. On March 1, 2013, the Norwegian district court in Oslo overturned the tax assessment and ruled in our favor, and the tax authorities have filed an appeal. We believe that our Norwegian tax returns are materially correct as filed, and we intend to continue to vigorously defend ourselves against all claims to the contrary. In June 2011, the Norwegian authorities issued criminal indictments against two of our subsidiaries alleging misleading or incomplete disclosures in Norwegian tax returns for the years 1999 through 2002, as well as inaccuracies in Norwegian statutory financial statements for the years ended December 31, 1996 through 2001. The criminal trial commenced in December 2012. Two employees of our former external tax advisors were also issued criminal indictments with respect to the disclosures in our tax returns, and our former external Norwegian tax attorney was issued criminal indictments related to certain of our restructuring transactions and the 2001 dividend payment. We believe the charges brought against us are without merit and do not alter our technical assessment of the underlying claims. In January 2012, the Norwegian authorities supplemented the previously issued criminal indictments by issuing a financial claim of NOK 1.8 billion, equivalent to approximately $302 million, jointly and severally, against our two subsidiaries, the two external tax advisors and the external tax attorney. In February 2012, the authorities dropped the previously existing civil tax claim related to a certain restructuring transaction. In April 2012, the Norwegian tax authorities supplemented the previously issued criminal indictments against our two subsidiaries by extending a criminal indictment against a third subsidiary, alleging misleading or incomplete disclosures in Norwegian tax returns for the years 2001 and 2002. In May 2013, the Norwegian authorities dropped the financial claim of NOK 1.8 billion against one of our subsidiaries and the criminal case related to the migration case of another subsidiary. The criminal trial proceedings ended in September 2013, and the court has not yet ruled on the criminal issues. If we are found guilty, the Norwegian authorities have asked the court to assess criminal penalties in the amount of $38 million against three of our subsidiaries in addition to any civil tax penalties and the financial claim. We believe our Norwegian tax returns are materially correct as filed, and we intend to continue to vigorously contest any assertions to the contrary by the Norwegian civil and criminal authorities in connection with the various transactions being investigated. An unfavorable outcome on the Norwegian civil or criminal tax matters could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. Brazil tax investigations—Certain of our Brazilian income tax returns for the years 2000 through 2004 are currently under examination. In December 2005, the Brazilian tax authorities issued an aggregate tax assessment of BRL 677 million, equivalent to $283 million, including a 75 percent penalty and interest through December 31, 2013. On January 25, 2008, we filed a protest letter with the Brazilian tax authorities, and we are currently engaged in the appeals process. We believe our returns are materially correct as filed, and we are vigorously contesting these assessments. An unfavorable outcome on these proposed assessments could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. Other tax matters—We conduct operations through our various subsidiaries in a number of countries throughout the world. Each country has its own tax regimes with varying nominal rates, deductions and tax attributes. From time to time, we may identify changes to previously evaluated tax positions that could result in adjustments to our recorded assets and liabilities. Although we are unable to predict the outcome of these changes, we do not expect the effect, if any, resulting from these adjustments to have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. See Note 27—Subsequent Events.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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