CAT Deferred or Avoided Paying Billions in Taxes, Senate Panel Says

Caterpillar Inc. deferred or avoided paying $2.4 billion of U.S. taxes under a corporate restructuring that shifted profits from overseas replacement-part sales to a Swiss subsidiary, according to a Senate subcommittee report, said the Wall Street Journal.

The issue involves parts made by Caterpillar suppliers, mostly in the U.S., and sold to customers abroad. Until 1999, Caterpillar’s U.S. operations bought the CAT-branded parts from suppliers and sold them via dealers to foreign customers, incurring U.S. corporate income tax. Since the 1999 restructuring of a Swiss subsidiary, that unit has acquired the parts and sold them to dealers outside the U.S., eliminating or deferring most of the U.S. tax liability.

The parts are designed, manufactured and stored in the U.S., the report said; none is made in or shipped from Switzerland. It also said a senior Caterpillar tax manager acknowledged that the restructuring’s only business advantage was that it delayed or reduced tax payments, with tax benefits reaching as much as $300 million annually.

Caterpillar negotiated an effective tax rate of 4% to 6% in Switzerland, the report said. In the U.S., corporate income is taxed at as much as 35%.

Caterpillar said it set up a “standard multinational business structure” consistent with the letter and spirit of U.S. tax law, and its effective tax rate averages 29%, higher than the average for U.S. corporations.

The Internal Revenue Service will determine whether the company’s tax practices violated any rules.