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Cat Defends Itself On Tax-Dodging Claim

Posted on April 2, 2014

In testimony before the U.S. Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations (PSI), Julie Lagacy, Caterpillar vice president with responsibility for the Finance Services Division, defended the company against accusations of offshore tax-dodging.

“Caterpillar takes very seriously its obligation to follow tax law and pay what it owes,” said Lagacy. “In fact, Caterpillar’s effective income tax rate averages about 29%, which is one of the highest for a U.S. multinational manufacturing company. Caterpillar’s philosophy is that our business structure drives our tax structure. We comply with the tax laws enacted by Congress, by the states and by all of the many jurisdictions in which we conduct business.”

Earlier, the PSI had issued a 99-page report saying that Caterpillar avoided paying $2.4 billion in U.S. taxes from 2000 through 2012 by moving profits from sales of replacement parts through a Swiss subsidiary.

Democratic Sen. Carl Levin said the Swiss arrangement had no business purpose other than to dodge taxes. "The documents couldn't be clearer, it's a tax deal," Levin said at the hearing, the latest in a series on corporate tax avoidance.

Caterpillar said its tax strategies, related to a complex corporate restructuring that began in 1999, were legal and in the best interest of its shareholders. "We remain convinced that the restructuring and subsequent transactions comply with the tax law," said Lagacy.

Cat said in a statement that the Internal Revenue Service thoroughly examined the Swiss subsidiary Caterpillar SARL (CSARL) but did not challenge its validity. "Caterpillar has not paid additional taxes to settle a dispute over the CSARL structure," the statement said.

 “CSARL is a major operating company with thousands of people around the world who perform strategically critical work to support our customers in non-U.S. markets,” said Lagacy. “We grow and build near our customers worldwide, not only because it’s what they demand, but because remaining globally competitive helps create jobs in the United States.”

Along with three Caterpillar executives, representatives of Big Four accounting firm PricewaterhouseCoopers LLP, defended the tax advice it gave Caterpillar on its Swiss deal.

Republican senators said at the hearing Caterpillar and other multinational companies should not be blamed for shifting profits abroad to avoid the 35% U.S. corporate tax rate.

"We've got the wrong people on trial here,” said Republican Sen. Rand Paul. “The tax code needs to be on trial here."

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