In the latest example of a major U.S. corporation's offshore tax
strategies going under the congressional microscope, the Senate
Permanent Subcommittee on Investigations issued a report focused on
a complex 1999 restructuring by Caterpillar.
The world's largest mining and construction equipment maker's
restructuring negotiated a low tax rate with Switzerland for a unit
it set up there to book taxable profits from sales of
Caterpillar-branded replacement parts made by third parties under
contract with the Peoria, Illinois-based company.
"This is a prime example of a tax avoidance strategy, which is
costing the U.S. Treasury billions of dollars," said Senator Carl
Levin, the Democratic chairman of the subcommittee, which has a
hearing scheduled for Tuesday on the report's findings.
Caterpillar makes no replacement parts and has no warehouses in
Switzerland, but 85 percent of its parts business's profits went
through the Swiss unit, where the company pays a tax rate of between
4 percent and 6 percent, the subcommittee said.
The top U.S. corporate tax income rate is 35 percent.
Caterpillar's Swiss structure continues to save the company about
$300 million a year in U.S. taxes, the subcommittee said.
In a response to the Levin report, Caterpillar said its Swiss unit,
known as Caterpillar Sarl, or CSARL, has a large marketing and sales
presence in Geneva, Switzerland.
"CSARL is no mere shell, but rather a major operating company
employing hundreds of personnel in Geneva," said Julie Lagacy, vice
president of Caterpillar's finance services division, according to
prepared testimony released ahead of the hearing.
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Along with three Caterpillar executives, representatives of Big Four
accounting firm PricewaterhouseCoopers LLP (PwC), which advised
Caterpillar on the restructuring, are expected to testify.
A spokeswoman for PwC defended the firm's tax advice to Caterpillar.
"We stand by the work we did for them," the spokeswoman said in a
Levin's panel has also held hearings on the tax strategies of Apple
Inc, Hewlett-Packard Co and Microsoft Corp.
"This (Caterpillar) investigation demonstrates just how shifting
profits to a tax haven is not just the province of high-tech
companies," Levin said.
(Additional reporting by James Kelleher;
editing by Kevin Drawbaugh
and Grant McCool)
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