Caterpillar Discloses Grand Jury Probe

The movement of cash among Caterpillar's U.S. and non-U.S. subsidiaries is the subject of a federal subpoena.
Matthew HellerFebruary 18, 2015
Caterpillar Discloses Grand Jury Probe

Caterpillar, which has been under congressional scrutiny over a strategy to cut taxes on overseas sales, has disclosed that a federal grand jury is investigating the movement of cash among its U.S. and overseas subsidiaries.

The maker of construction and mining equipment said in a regulatory filing that it had received a grand jury subpoena from the U.S. District Court for Central Illinois on Jan. 8 and was cooperating with the investigation.

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caterpillar2The subpoena requested “documents and information from the company relating to, among other things, financial information concerning U.S. and non-U.S. Caterpillar subsidiaries (including undistributed profits of non-U.S. subsidiaries and the movement of cash among U.S. and non-U.S. subsidiaries),” the filing stated.

The filing didn’t provide further details of the grand jury probe, but Caterpillar also disclosed it had been informed in September that the U.S. Securities and Exchange Commission was conducting an “informal investigation” relating to Caterpillar SARL, a Swiss subsidiary.

As The Wall Street Journal reports, a tax strategy developed by Caterpillar in the late 1990s cut U.S. taxes on its lucrative sales of replacement parts for excavators, bulldozers, and other machines outside the United States. Those parts are typically made by outside suppliers.

Starting in 1999, the WSJ said, Caterpillar SARL bought the parts directly from the outside suppliers, removing Caterpillar U.S. from the transaction and, as a result, reducing the company’s U.S. tax liabilities.

In March 2014, the U.S. Senate’s Permanent Subcommittee on Investigations said in a report that Caterpillar had deferred or avoided paying $2.4 billion of U.S. taxes as a result of the restructuring. About 85% of the profits from overseas part sales were recorded in Switzerland, where Caterpillar’s effective tax rate was between 4% and 6%, according to the report.

The Internal Revenue Service also has questioned the practice of recording profits on overseas sales of parts at the Swiss unit, the company disclosed last year.

In congressional testimony last April, Caterpillar denied evading taxes, saying its federal income tax liability totaled $1.8 billion in the past three years and it had also paid $645 million over the same period in state and local income, property, and sales and use taxes.

Photo: Caterpillar