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Texas Supreme Court Ruling in TGS-NOPEC Tax Case Benefits WesternGeco

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AUSTIN, Texas, May 27, 2011 -- The Texas Supreme Court unanimously ruled today in favor of TGS-NOPEC Geophysical Company in a franchise tax case involving sourcing of receipts from licensing geophysical data.

WesternGeco LLC, which is under audit for identical issues raised in the TGS-NOPEC case, retained Baker Botts L.L.P. to represent it and other amicus curiae before the Texas Supreme Court. WesternGeco also retained the firm to assist counsel for TGS-NOPEC in briefing the state Supreme Court.

The issue in the case was whether TGS-NOPEC should source receipts from licensing geophysical data as “receipts from the use of a license” (the Texas Comptroller’s position) or as “receipts from the sale of intangibles” (TGS-NOPEC and WesternGeco’s position).

On audit, the Texas Comptroller increased TGS-NOPEC’s franchise tax assessment. TGS-NOPEC paid the tax and filed a refund claim in Travis County District Court. The District Court granted the Comptroller’s motion for summary judgment and denied TGS-NOPEC’s claim. TGS-NOPEC appealed the decision to the Court of Appeals for the Third District of Texas. The Court of Appeals affirmed the District Court’s decision and sustained the tax assessment.

TGS-NOPEC then filed a petition for review before the Texas Supreme Court. Recognizing that it would likely be bound by the outcome of this case, WesternGeco requested the Baker Botts‘ State Tax Section participation in briefing the Supreme Court in order to protect its interest in the outcome.

The firm’s State Tax Section, led by Renn Neilson and assisted by partner Tom Phillips, also drafted a brief on behalf of WesternGeco as an amicus curiae and assisted counsel for amicus curiae International Association of Geophysical Contractors in drafting a brief. Phillips presented oral arguments to the Court on behalf of amicus curiae WesternGeco and its parent Schlumberger.

In its opinion, the Texas Supreme Court rejected the Comptroller’s construction of the applicable sourcing statute and adopted arguments the Firm’s State Tax Section developed in its briefs. The Supreme Court reversed the Court of Appeals and remanded the case to the District Court for further proceedings.

Baker Botts continues to represent WesternGeco in its administrative redetermination hearing before the Texas Comptroller, which will likely be settled because of the Supreme Court’s opinion.



About Baker Botts L.L.P.
Baker Botts is an international law firm with over 725 lawyers and a network of 13 offices around the globe. Based on our experience and knowledge of our clients’ industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Throughout our 170-year history, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit www.bakerbotts.com.

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