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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes |
Income Taxes | Note 12—Income Taxes Overview—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. For Swiss federal income taxes, qualifying net dividend income and net capital gains on the sale of qualifying investments in subsidiaries are exempt. Consequently, there is not a direct relationship between our Swiss earnings before income taxes and our Swiss income tax expense. Tax provision and rate—Our provision for income taxes is based on the tax laws and rates applicable in the jurisdictions in which we operate and earn income. In the years ended December 31, 2019, 2018 and 2017, our effective tax rate was (4.9) percent, (12.8) percent and (3.1) percent, respectively, based on loss before income tax expense. 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. The components of our income tax provision (benefit) were as follows (in millions): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Years ended December 31, |
​ |  | 2019 |  | 2018 |  | 2017 |
Current tax expense (benefit) |  | $ | (189) | ​ | $ | 244 | ​ | $ | 5 | ​
Deferred tax expense (benefit) | ​ | ​ | 248 | ​ | ​ | (16) | ​ | ​ | 89 | ​
Income tax expense |  | $ | 59 | ​ | $ | 228 | ​ | $ | 94 | ​
​ The following is a reconciliation of the income tax expense (benefit) computed at the Swiss holding company federal statutory rate of 7.83% and our reported provision for income taxes (in millions): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Years ended December 31, |
​ |  | 2019 |  | 2018 |  | 2017 |
Income tax benefit at Swiss federal statutory rate |  | $ | (94) | ​ | $ | (139) | ​ | $ | (235) | ​
Earnings subject to rates different than the Swiss federal statutory rate | ​ | ​ | 189 | ​ | ​ | (86) | ​ | ​ | (30) | ​
Effect of operating structural changes in the U.S. | ​ | ​ | 98 | ​ | ​ | — | ​ | ​ | — | ​
Changes in valuation allowance | ​ | ​ | 37 | ​ | ​ | 67 | ​ | ​ | 162 | ​
Losses on impairment | ​ | ​ | 35 | ​ | ​ | 114 | ​ | ​ | 241 | ​
Deemed profits taxes | ​ | ​ | 22 | ​ | ​ | 8 | ​ | ​ | 16 | ​
Base erosion and anti-abuse tax | ​ | ​ | 21 | ​ | ​ | 33 | ​ | ​ | — | ​
Withholding taxes | ​ | ​ | 11 | ​ | ​ | 8 | ​ | ​ | 14 | ​
Currency revaluation of Norwegian assets | ​ | ​ | 5 | ​ | ​ | 11 | ​ | ​ | 1 | ​
Effect of U.S. tax reform | ​ | ​ | — | ​ | ​ | 104 | ​ | ​ | 66 | ​
Litigation matters, primarily related to the Macondo well incident | ​ | ​ | — | ​ | ​ | — | ​ | ​ | (70) | ​
Benefit from foreign tax credits | ​ | ​ | (8) | ​ | ​ | (5) | ​ | ​ | (15) | ​
Changes in unrecognized tax benefits, net | ​ | ​ | (268) | ​ | ​ | 117 | ​ | ​ | (56) | ​
Other, net | ​ | ​ | 11 | ​ | ​ | (4) | ​ | ​ | — | ​
Income tax expense |  | $ | 59 | ​ | $ | 228 | ​ | $ | 94 | ​
​ Deferred taxes—The significant components of our deferred tax assets and liabilities were as follows (in millions): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, |
​ |  | 2019 |  | 2018 |
Deferred tax assets | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net operating loss carryforwards |  | $ | 571 | ​ | $ | 479 | ​
Interest expense limitation | ​ | ​ | 77 | ​ | ​ | 76 | ​
Accrued payroll expenses not currently deductible | ​ | ​ | 45 | ​ | ​ | 49 | ​
Deferred income | ​ | ​ | 41 | ​ | ​ | 26 | ​
Loss contingencies | ​ | ​ | 38 | ​ | ​ | 40 | ​
United Kingdom charter limitation | ​ | ​ | 36 | ​ | ​ | 30 | ​
Tax credit carryforwards | ​ | ​ | 22 | ​ | ​ | 11 | ​
Accrued expenses | ​ | ​ | 16 | ​ | ​ | 44 | ​
Other | ​ | ​ | 24 | ​ | ​ | 13 | ​
Valuation allowance | ​ | ​ | (716) | ​ | ​ | (681) | ​
Total deferred tax assets | ​ | ​ | 154 | ​ | ​ | 87 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred tax liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​
Depreciation | ​ | ​ | (361) | ​ | ​ | (62) | ​
Contract intangible amortization | ​ | ​ | (23) | ​ | ​ | (22) | ​
Other | ​ | ​ | (16) | ​ | ​ | (1) | ​
Total deferred tax liabilities | ​ | ​ | (400) | ​ | ​ | (85) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred tax assets (liabilities), net |  | $ | (246) | ​ | $ | 2 | ​
​ At December 31, 2019 and 2018, our deferred tax assets included U.S. foreign tax credit carryforwards of $22 million and $11 million, respectively, which will expire between 2020 and 2028. The deferred tax assets related to our net operating losses were generated in various worldwide tax jurisdictions. At December 31, 2019, our net deferred tax assets related to our net operating loss carryforwards included $354 million, which do not expire and $217 million, which will expire beginning between 2020 and 2037. At December 31, 2018, our net deferred tax assets related to our net operating loss carryforwards included $307 million, which do not expire and $172 million, which will expire beginning between 2021 and 2038. In the year ended December 31, 2019, our deferred tax liabilities for depreciation increased primarily as a result of certain operating structural changes that we made in the U.S. As of December 31, 2019, our consolidated cumulative loss incurred over the recent three-year period represented significant objective negative evidence for the evaluation of the realizability of our deferred tax assets. Although such evidence has limited our ability to consider other subjective evidence, we analyze each jurisdiction separately. We consider objective evidence, such as contract backlog activity, in jurisdictions in which we have profitable contracts. If estimated future taxable income changes during the carryforward periods or if the cumulative loss is no longer present, we may adjust the amount of deferred tax assets that we expect to realize. At December 31, 2019 and 2018, due to uncertainty of realization, we had a valuation allowance of $716 million and $681 million, respectively, on net operating losses and other deferred tax assets. Our other deferred tax liabilities include taxes related to the earnings of certain subsidiaries, which are not indefinitely reinvested or that will not be indefinitely reinvested in the future. At December 31, 2019, we had $254 million of unremitted earnings which we consider to be indefinitely reinvested. If we were to make a distribution from the unremitted earnings of these subsidiaries, we would be subject to taxes payable of $13 million. If our expectations were to change regarding future tax consequences, we may be required to record additional deferred taxes that could have a material effect on our consolidated statement of financial position, results of operations or cash flows. Unrecognized tax benefits—The changes 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, |
​ |  | ​ | 2019 |  | ​ | 2018 |  | ​ | 2017 |
Balance, beginning of period |  | $ | 408 | ​ | $ | 222 | ​ | $ | 274 | ​
Additions for prior year tax positions | ​ | ​ | 6 | ​ | ​ | 172 | ​ | ​ | 17 | ​
Additions for current year tax positions | ​ | ​ | 144 | ​ | ​ | 29 | ​ | ​ | 13 | ​
Reductions related to statute of limitation expirations and changes in law | ​ | ​ | (138) | ​ | ​ | (8) | ​ | ​ | (13) | ​
Reductions for prior year tax positions | ​ | ​ | (66) | ​ | ​ | (7) | ​ | ​ | (68) | ​
Reductions due to settlements | ​ | ​ | (19) | ​ | ​ | — | ​ | ​ | (1) | ​
Balance, end of period |  | $ | 335 | ​ | $ | 408 | ​ | $ | 222 | ​
​ 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, |
​ | ​ | ​ | 2019 |  | ​ | 2018 |
Unrecognized tax benefits, excluding interest and penalties | ​ | $ | 335 | ​ | $ | 408 | ​
Interest and penalties | ​ | ​ | 34 | ​ | ​ | 106 | ​
Unrecognized tax benefits, including interest and penalties | ​ | $ | 369 | ​ | $ | 514 | ​
​ In the years ended December 31, 2019, 2018 and 2017, we recognized, as a component of our income tax provision, income of $72 million, expense of $13 million and income of $9 million, respectively, related to interest and penalties associated with our unrecognized tax benefits. As of December 31, 2019, if recognized, $175 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, 2020, 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. U.S. tax reform—In December 2017, the U.S. enacted the 2017 Tax Act, which introduced changes to U.S. tax law, such as, among others, a transition tax, a federal income tax rate reduction and a base erosion and anti-abuse tax. We recognized the income tax effect of the 2017 Tax Act in accordance with Staff Accounting Bulletin No. 118, which provides guidance for the application of accounting standards for income taxes in the reporting period in which the 2017 Tax Act was enacted. The one-time transition tax applied to certain unremitted earnings and profits of our non-U.S. subsidiaries that are owned by U.S. subsidiaries. In the year ended December 31, 2018, we completed the evaluation of our unremitted earnings and profits for which the necessary information was not previously available, and we recorded income tax expense of $120 million for estimated transition taxes and $16 million for the utilization of estimated foreign tax credits. In the years ended December 31, 2019 and 2018, we recognized income tax expense of $21 million and $33 million, respectively, related to the bareboat charter structure of our U.S. operations, a significant portion of which is contractually reimbursable by our customers due to a change-in-law provision in certain drilling contracts. In the year ended December 31, 2017, we recognized income tax expense of $66 million with a corresponding decrease to our net deferred tax assets to reflect the reduced federal income tax rate. 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 2011. Our tax returns in the major jurisdictions in which we operate, other than Brazil, as 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 20 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 timing or the 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. Brazil tax investigations—In December 2005, the Brazilian tax authorities began issuing tax assessments with respect to our tax returns for the years 2000 through 2004. In January 25, 2008, we filed a protest letter with the Brazilian tax authorities for these tax assessments, and we are currently engaged in the appeals process. In May 19, 2014, the Brazilian tax authorities issued an additional tax assessment for the years 2009 and 2010, and in June 18, 2014, we filed protests with the Brazilian tax authorities for these tax assessments. During the years ended December 31, 2018 and 2019, a portion of two cases were favorably closed. As of December 31, 2019, the remaining aggregate tax assessment was for BRL 676 million, equivalent to approximately $168 million, including penalties and interest. 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 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.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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