Caterpillar “Legally” Saved $2.4 Billion on Taxes but Carl Levin Calls “BS”

TaxesTaxes. Many individuals shutter upon the mere mention of the word, and corporations employ hundreds of pricey brainiacs annually to minimize their tax exposure. Caterpillar Inc. however has been “smiling” a little brighter throughout tax season since the year 2000, and now it has become clear just what exactly put that “smile” on the company’s “face.” ¬†As the story goes, Caterpillar Inc. saved itself $2.4 billion on taxes, but Senator Carl Levin is calling “BS” on just how the company did so.

Senator Carl Levin has taken aim at Caterpillars approach to taxes, saying that the company’s strategy was simply not “tolerable.” He highlighted the Caterpillar approach as a classic tax avoidance case which needed to be reviewed to determine if such approaches should be tolerated. Caterpillar insists it has complied with all laws in paying its Taxes, however Levin is not convinced. Senator Levin is the chair of the Senate Subcommittee on investigations, and he has looked into corporate tax issues multiple times in the past. Caterpillar now finds itself in the crosshairs of Levin and the Senate subcommittee regarding the data behind the “smile” its been wearing since 2000.

Lawmakers will be meeting with executives from Caterpillar Inc. today in Washington to determine whether the strategy employed by the company to deal with corporate taxes is illegal or not. Although Senator Levin has used some harsh words in describing the process used by Caterpillar, there has been no accusation that any illegal activity took place or that any laws were breached throughout the process. As the subcommittee investigates the company’s taxes however, some in the public may be wondering just how this issue arose to the attention of Washington in the first place.

It may be that were it not for a whistleblower named Daniel Schlicksup, Caterpillar might still be wearing a happy “smile” on its face and laughing all the way to the bank after wrapping up its annual taxes. Schlicksup’s actions however may have ushered in the storm clouds that today look ready to rain on the company’s party. When it comes to the area of taxes, it is almost standard procedure for corporations to find and exploit loopholes within tax law. Daniel Schlicksup however, a Caterpillar executive turned whistleblower, became concerned that the strategy followed by the company was borderline regarding legality. Schlicksup was in charge of the firms tax strategy when he raised his concerns regarding the process. Shortly after raising his concerns that the strategy being used was not legitimate business but instead an attempt to simply save on taxes, Schlicksup found himself being transferred to another division.

Daniel Schlicksup sued Caterpillar after he was transferred, and he cited tax evasion. Although the whistleblowers suit was settled out of court, too many details apparently made it into the light for the party to continue uninterrupted. As a result of the information made public by Schlicksup’s suit, Washington got wind of Caterpillars innovative approach to taxes.

Prior to the year 2000, 85% of Caterpillars’ sales were attributed to its US headquarters and thus it paid its taxes accordingly. After the year 2000 however, it all changed. After paying PriceWaterhouseCoopers what in retrospect appears to be a comparatively tiny sum of $55 million dollars, Caterpillar was the happy recipient of a tax strategy which has saved the company a reported $2.4 billion in taxes since 2000. As a result however, Carl Levin however is now calling “BS.”

The company structure when from 85% of its sales being attributed to its US headquarters, to just 15% credited to its US operations. The 85% was then attributed to its Swiss-based wholly owned subsidiary which then transacted business which the company’s US-based facilities. The question that Senator Levin and the subcommittee will be attempting to answer is whether this was an actual business decision or if it was simply an attempt to avoid taxes. Taxes are a complicated and daunting task for both the collectors and those who pay them. Caterpillar insists that it complied with all of the current tax laws, and pointed out that it pays one of the highest rate of taxes for any multinational corporation.

Due to the information made public by the little fiasco with whistleblower Daniel Schlicksup, Washington asked company executives some uncomfortable questions today. Caterpillar Inc’s story is that it “legally” saved $2.4 billion in taxes as a result of some legitimate strategic changes, Senator Carl Levin however is calling that “BS.” During questioning however, the company had some allies, like Senator Paul who commended their approach to taxes, lauding their commitment to saving shareholders as much money as possible. Time will tell how the chips fall for Caterpillar and the general topic of corporate tax strategies.

By Daniel Worku

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