Skip to comments.Caterpillar avoided $2.4B in taxes, charges Sen. Levin
Posted on 03/31/2014 4:18:22 PM PDT by jazusamo
Caterpillar avoided $2.4 billion in taxes thanks to a reorganization that housed its most profitable business in Switzerland, according to a Senate report.
While the report, from the Senate Permanent subcommittee on Investigations, said Caterpillar had done nothing illegal, it criticized the manufacturing giant for trying to avoid paying U.S. taxes.
Caterpillar is an American success story that produces tremendous industrial machines, Sen. Carl Levin (D-Mich.), the head of the investigatory panel, said Monday. But its also a member of the corporate profit-shifting club that has shifted billions of dollars in profits offshore to avoid paying U.S. taxes, Levin said. This is a prime example of a tax avoidance strategy that has cost the U.S. Treasury billions of dollars.
In response to the report, Caterpillar said it was just one part of the companys business, and that it is not trying to skirt U.S. tax laws. The company noted that its effective income tax rate averages about 29 percent, one of the highest for a U.S. multinational manufacturing company.
Caterpillar takes very seriously its obligations to follow tax law and pay what it owes, said Julie Lagacy, the companys vice president overseeing the financial services division. Caterpillars philosophy is that our business structure drives our tax structure. We comply with tax laws enacted by Congress, by the states and by all of the many jurisdictions in which we conduct business.
The report found that in 1999, Caterpillar paid $55 million to develop a tax strategy that allowed it to report most of its profits for the sale of equipment parts under a wholly owned Swiss subsidiary, where it would be hit by just a 4 to 6 percent tax rate.
The vast bulk of the companys work researching, manufacturing and storing parts continued to happen on U.S. soil, but 85 percent of the profits from that work were found in Switzerland.
The arrangement remains in place, according to the Senate report, and the company reaps roughly $300 million in tax savings a year from it.
Before the 1999 restructuring, the company reported at least 85 percent of its parts profits in the United States.
Mondays report marks the latest in a long-running campaign by Levin to place heat on large corporations looking to minimize their tax bill, and the financial institutions that make it possible.
Levin has previously dissected the offshore tax maneuverings of Apple and Microsoft, and has pressured a number of large Swiss banks that entice companies with secrecy and lower tax bills.
Levin billed the latest report as evidence of how widespread the practice is.
Arizona Sen. John McCain, the top Republican on Levins panel, has co-signed on to many of Levins past findings, but he did not endorse the Caterpillar report.
Levin said the two senators differed on its conclusions.
Levin said staff for both members worked on the investigation; a McCain spokesman declined to detail the senators specific concerns with the document.
Top executives for Caterpillar and PricewaterhouseCoopers, which structured the tax arrangement, are slated to testifyTuesday before Levins panel, the latest in a series of corporate grillings.
McCain will attend Tuesdays hearing.
The report emphasized how little parts work was actually done by Caterpillar in Switzerland, even though the lions share of profits were reported in that country.
For example, of the 8,300 company employees working on parts, 4,900 are based in the United States. Just 65 parts employees work in Switzerland, and less than 0.5 percent of the companys workforce is based there.
The U.S. is also home to 54 manufacturing facilities and 10 warehouses for parts. Switzerland does not have any.
The company was able to report the bulk of its parts profits in Switzerland thanks to the 1999 restructuring. Under the new arrangement, Caterpillar agreed to transfer the rights to most of its parts profit to the Swiss subsidiary. The Swiss subsidiary would handle the sales of parts to Caterpillars non-U.S. dealers, and pay Caterpillar a royalty equal to 15 percent of the profits as part of the arrangement.
In the process, the company agreed to continue to perform the core business functions of that parts division in the U.S. in exchange for a small service fee.
In essence, Levins report argues that Caterpillars restructuring did almost nothing to alter the companys operations, except for the fact that its most profitable division would now see those profits taxed at a much lower rate.
Did anything change in the real world? Did anything change in its operations? he asked. The answer is no.
The report called on the IRS to cast a closer look on such arrangements, and to question whether there is actual economic substance to the moves beyond lowering a tax bill as required by law. Levin was critical of the IRSs handling of this, and the ongoing arrangement could still be audited by the tax agency.
In general, Id say theyve not been effective, he said.
This story was updated at 5:37 p.m. with a response from Caterpillar.
A rational person would look at what drove them to avoid the taxes.
Exactly, and not only them but many other corporations.
Levin needs to just go home and continue to suck off the public as he has done for decades.
He's a Taker, NOT a Maker.
So is Levin saying that Democrats always try to maximize their tax exposure?
Levin forgets all of those union Cat workers that are forced to give a chunk of their paycheck to democrats
Like Cruz says...scrap the tax code and abolish the IRS.
How much did SOLYNDRA avoid in taxes along with ALL taxpayer dollars
GIVEN to them????
There is nothing illegal or immoral about avoiding taxes. In fact it is management’s duty to their owners.
I thought that was
being smart, like avoiding speeding to avoid speeding tickets… or should we treat people that obey the speed limit as government revenue dodgers?
Conclusion, Levin wants money from Caterpillar.
The ultimate goal of the Marxist, aka Democrats, will be to nationalize all American industry in the new USSA.
If you take the standard deduction you are avoiding taxes.
Subject: Rat taxes
Message: Per your request, we will move all Caterpillar facilities to Switzerland.
Levin is just annoyed that the company still does ANY business in the United States, obviously we need a few more tax hikes to ensure that U.S.-based corporations get the message that they’re no longer welcome in this country.
Again, being smart.
Though I am philosophically opposed to our current income tax system:
(1) Withholding is immoral, and either theft or forcing the employer to commit fraud.
(2) The deduction / exemption system is encouragement for fraud and political power abuse.
(3) The bracket system (graduated rates) combined with the above is a useless make-work program for the IRS to justify itself.
Levin is steaming mad because the guys a Caterpillar are a lot smarter than the guys at Big Government, and made Big Government look like fools.
You nailed it...From us lowly peons right up to the largest corporations.
I’m sure Levin doesn’t take advantage of tax laws to minimize his own tax liabuility.
Yep, and Levin’s really ticked because that’s not hard to do. lol
It is the responsibility of every CEO/CFO in America to manage tax liability. If they do a poor job, they are exposed to shareholder liability and worse.
Levin is an idiot.
No, Levin is not an idiot.
Levin is a warrior, a class war warrior. His intent is to enrage his old union base, most blacks and all on welfare to hate corporations and vote democrat
His weapons are words
Caterpillar also avoided bankruptcy. Shouldn’t that be the real point!
How dare CAT not allow the government to piss away every damn last dime of their tax payments.
2.4 Billion? That would pay for about 20 Chicago teachers pensions.
They have a fiduciary responsibility to do that.
If it was legal then GOOD FOR CAT!
What Sen Levin really means is:
Look here, we passed these complicated laws for ourselves and our close friends, how dare you use the same law to shelter your income. I know just because us folks in the Ruling Class have been doing it forever(see Kennedy Trust) doesn’t mean it was meant for everyone, and we Don’t Like it.
What the heck has the federal government done to make Caterpillar successful???
They did nothing illegal, just smart, in avoiding the ridiculous taxes levied by the Socialists in D. C. and IL.
I am sure of that too but let's see a full IRS anal probe of Levin's dealings anyway ... for transparency.
With no thanks to levin, expect caterpillar to close up shop in the US in the near future. The industrial decline in the US, and loss of heavy manufacturing here in the US is the last nail in the coffin for a company like caterpillar. The US is in its post industrial decline, being replaced by the downward spiral service and financial industries. When you get to the point where your country only trades haircuts and hamburgers for worthless paper, you’re basically screwed. Enjoy the ride down.
Anytime a company can avoid paying more taxes to an over bloated POS government like ours is a good thing.
Rue the day!
Go Caterpillar, starve the freakin beast!!
I am amazed at the magnitude of Carl Levin’s greed.
They destroyed it here in York, PA, and over 1,100 jobs were lost in 1998, thanks to the scum UAW 17-mo strike. Not much remains, and that might be going away this year.
But they certainly will not be when they face a 40% tax.
BTW my boss met a millionaire Swiss businessman recently: his total tax burden (without any special breaks) is 18%.
You’re absolutely right...Until the idiots in Washington realize that our industries will keep moving out of the country.
Are they within the law? If so, pee up a rope, Carl.
Well done Caterpillar. The company does not exist for the benefit of the Government, it’s owned and exists for the benefit of its shareholders. Typical B.S. from the party whose leader believes “you didn’t build that”
Follow the money.
Tax avoidance is good stewardship and not illegal.
What is the term for threatening congressional action but withdrawing support after a sizeable donation?
Carl Levin is a disgrace. He wrote letters to IRS to deny tax exempt status telling IRS to to target Tea Party organizations. Now he is parading Caterpillar in front of Committee on Homeland Security and Governmental Affairs accusing Caterpillar of avoiding billions in taxes yet he has the gall to say that Caterpillar is not breaking any laws. Dear Carl, if Caterpillar is not breaking any laws then they are not avoiding taxes. If you want to change the law, then change it! Quit singling out and slandering individual taxpayes, like Apple and Caterpillar.
“The report raises questions about the validity of the tax strategy but doesn’t accuse the Peoria, Ill.-based manufacturer of breaking the law.
“We don’t reach those kinds of judgments,” Levin said. “The question is, ‘Is it tolerable?’ And I don’t think it is.”