Caterpillar Inc. has evaded paying billions in taxes by shifting its profits to a wholly owned affiliate company in Switzerland. American based industrial manufacturing company spent $55 million to plan and implement a scheme in 1999 that allowed profits to be moved to an offshore account in what is believed to be an attempt to avoid or delay being taxed $2.4 billion. These practices seem to fall out of line with Economic Substance Doctrine—Part of the United States tax law that prohibits transactions that have no economic purpose other than the reduction of tax liability.
In other words, you cannot complete transactions for the sole purpose of saving on your taxes.
The aggressive tax evasion strategy has landed caterpillar Inc. a hearing with The United States Senate. The entire situation stems from a civil suit filed by a former employee who claimed the company had not properly attributed sales, instead crediting them to their Swiss affiliate. The move seems questionable given the majority of Caterpillars employees including most of the company’s executives are based in the United States, while only 65 Employees are stationed in Switzerland. The report disclosed that 85 percent of Caterpillar’s profits were shifted away from the division handling replacement parts, and into a Swiss partner.
It has also been discovered that while most of the profits are being shifted to Caterpillar Inc.’s Swiss affiliate, the bulk of caterpillars operation sold overseas is still stored, designed, researched, and manufactured in the United States. The company only keeps 15 percent of the profits inside the U.S. The Vice President of the company Julie by saying that they did not invent that tax structures, they were only following them. In first-hand report, The United States Senate Permanent Subcommittee revealed its findings on what some are calling an aggressive tax strategy. This evasive tax maneuver has cost the United States Treasury billions of dollars.
The subcommittee’s report states that Caterpillar had so far shifted $8 billion in revenue from in the Unites States firm to Switzerland. A Fortune 500 Company is well respected here in America with Democrats and Republicans alike defending the company’s actions. While it is still unclear whether or not Caterpillar has broken any tax laws, most taxpaying Americans feel the practice of shifting profits to avoid taxes is unethical. This case has brought about backlash with the American people and a drop in sales and overall trust in the business is likely to happen if the accusations prove to be true.
The head of that committee, Senator Carl Levin, spoke with a Reporter from USA Today calling Caterpillar Inc. “An American success story, as well as a member of the corporate club that evades paying its taxes by shifting its profits overseas.” An unnamed number of executives were scheduled to testify today as part of the subcommittee’s ongoing investigation. Senator Levin said that while they have been investigating, they do not have the right to determine whether or not Caterpillar in has broken any laws.
If Caterpillar Inc. successfully evades paying its taxes, what will this mean for other large corporations watching? For the United States of America, and the United States treasury, it could mean billions more in lost revenue for this country.