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The Aramco Advantage: Case Study

This solution also answers these four questions with respect to the case study:

1. Which unit of Texaco really "earned" the Aramco advantage? Aramco itself? Texaco's foreign refineries? Texaco's marketing operations? Or the parent corporation?

2. Had Aramco sold the crude oil to Texaco's U.S. refineries, would Texaco have been able to avoid U.S. taxation on the Aramco advantage?

3. Since Minister Yamani created the Aramco advantage in part in response to U.S. diplomatic pressure, should Exxon and Texaco have been required to sell their allotment of Saudi crude oil to their domestic refineries?

4. The IRS's lawyers argued that the appeals court ruling amounted to a "blueprint for the evasion of U.S. taxes. [It] .... creates substantial tax incentives for United States corporations to encourage or endure the adoption of profitable foreign 'legal restrictions' that 'require' such corporations to avoid United States taxation." Do you agree with the IRS position? Or is it just being a cry-baby because it lost?

Solution Summary

This solution deals with the Aramco Advantage case study. This case describes the so-called Aramco advantage that allowed the Aramco consortium of companies to make enormous profits, and the Internal Revenue Service's efforts to collect taxes on the revenues.