Tax

Raids Escalate Caterpillar Tax Dispute With U.S.

U.S. authorities executed search warrants at Caterpillar facilities as part of a probe of the company's shifting of corporate profits to a Swiss su...
Matthew HellerMarch 3, 2017
Raids Escalate Caterpillar Tax Dispute With U.S.

Federal authorities have raided three Caterpillar Inc. facilities in Illinois as part of a widening probe of the heavy equipment manufacturer’s tax-saving practices.

Caterpillar confirmed that the raids were connected to its shifting of $8 billion in corporate profits from the U.S. to a Swiss subsidiary, Caterpillar SARL, to reduce its tax bill. In Switzerland, the company negotiated a tax rate of 4 to 6%, compared to its effective U.S. tax rate of 29%.

A 2014 congressional investigation concluded that Caterpillar cut its domestic by $2.4 billion over 13 years by moving cash between its American and foreign subsidiaries.

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Besides Caterpillar’s downtown Peoria headquarters, federal authorities executed search warrants at company locations in East Peoria and Morton, according to a spokeswoman for the U.S. attorney’s office for the Central District of Illinois.

Caterpillar previously disclosed in a regulatory filing in February 2015 that it was the subject of a grand jury investigation.

“While the warrant is broadly drafted, we believe the execution of this search warrant is regarding, among other things, export filings that relate to the CSARL matter first disclosed in Caterpillar’s Form 10-K filed on February 17, 2015, and updated in Caterpillar’s most recent Form 10-K filed with the SEC on February 15, 2017,” the company said of Thursday’s searches in a statement.

Agencies involved in the searches included the Internal Revenue Service’s Criminal Investigation Division; the Office of Export Enforcement at the U.S. Department of Commerce’s Bureau of Industry and Security; and the Federal Deposit Insurance Corp.’s Office of Inspector General.

Caterpillar’s Morton facility is responsible for shipping and receiving replacement parts to dealers and parts facilities around the world.

“The apparent escalation of the government’s tax dispute with Caterpillar comes amid the Trump administration’s promise to reform corporate taxes and design a system that encourages companies to keep jobs and profits within the United States,” Reuters reported.

Caterpillar has defended its tax strategy, calling its practices prudent, lawful and typical among large U.S. companies. It is contesting an IRS demand that it pay $2 billion in taxes and penalties for profits assigned to the Swiss subsidiary between 2007 and 2012.

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