Caterpillar Dodged Billions in Taxes for Over a Decade
Caterpillar, industrial and construction equipment manufacturing Goliath, has been avoiding or deferring paying U.S. taxes for at least 13 years to the tune of approximately $2.4 billion, according to a report from the Homeland Security & Government Affairs Permanent Subcommittee on Investigations.
“Tax evasion schemes rob the system of billions of dollars,” commented Christopher Paulos, an attorney with the Levin, Papantonio law firm who practices in the areas of qui tam, or whistleblower, securities and False Claims Act litigation. “Untold numbers of such schemes are underway today.”
According to the report, starting in 1999 Caterpillar made changes in how it recorded its profits by shifting them to a Swiss affiliate.
The subcommittee’s chairman, Senator Carl Levin (D-Mich.), said, “Caterpillar is an American success story that produces phenomenal industrial machines, but it is also a member of the corporate profit-shifting club that has shifted billions in profits offshore to avoid paying U.S. taxes.”
In 1999, Caterpillar paid $55 million to PricewaterhouseCoopers to develop a strategy to redirect its profits and avoid U.S. taxes. To do this, it created a Swiss affiliate named “CSARL” and simply replaced the name Caterpillar with CSARL on invoices. After the plan went into effect, Caterpillar shifted 85% of its profits to Switzerland. This resulted in, over the course of 2000 through 2012, $2.4 billion in taxes being avoided.
Caterpillar had previously told the subcommittee that the profit shifting was a justified function of its business. However, when swearing, under oath, a company executive “acknowledged that there was no business advantage to the Swiss arrangement other than tax avoidance.”
Legislators are considering reviewing the tax laws that allowed such arrangements to be created and to go on for so long without being stopped.
“Presently, federal law provides whistleblower protections and rewards to qualified persons who report tax fraud, or provide information to the IRS relating to the underpayment of federal taxes or violations of the Internal Revenue Code,” according to Mr. Paulos. “If the information provided leads to the recovery of funds that are owed to the government, the person who reported the tax scheme may receive between 15% and 30% of the funds recovered… without such laws, tax fraud would be even less reported or prosecuted.”