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Caterpillar executives defend Swiss tax loophole

WASHINGTON — Caterpillar executives defended a tax strategy Tuesday that has saved the manufacturing giant $2.4 billion in U.S. taxes since 2000 by shifting profits to a wholly controlled affiliate in Switzerland, according to a report released by Sen. Carl Levin, D-Mich.

Levin, who chairs the Senate investigations subcommittee, grilled Caterpillar executives and their accountants Tuesday at a hearing on the company's tax strategy.

"Caterpillar is an American success story that produces iconic industrial machines," Levin said.

"But it is also a member of the corporate profit-shifting club that has transferred billions of dollars offshore to avoid paying U.S. taxes."

Julie Lagacy, a Caterpillar vice president, was adamant that the Peoria, Ill., manufacturer follows all tax laws.

"We pay everything we owe," she told the subcommittee.

Caterpillar, the world's leading manufacturer of construction and mining equipment, with sales and revenues last year of nearly $56 billion, got support from Sen. Rand Paul, R-Ky., who questioned why the subcommittee was even holding the hearing.

"I think rather than having an inquisition, we should probably bring Caterpillar here and give them an award," Paul said, adding that Caterpillar and its accountants have an obligation to shareholders to minimize their taxes. "You know, they've been in business for over 100 years. It's not easy to stay in business."

The report says Caterpillar paid PricewaterhouseCoopers LLP $55 million to develop the tax strategy. Under the strategy, Caterpillar transferred the rights to profits from its parts business to a wholly controlled Swiss affiliate called CSARL, even though no employees or business activities were moved to Switzerland, the report said.

In exchange, CSARL paid a small royalty, and the income was taxed at a special rate of 4 to 6 percent that Caterpillar negotiated with the Swiss government, the report said.

Before the 1999 arrangement, 85 percent of the profits from the parts business were taxed in the United States, the report said. Afterward, only 15 percent of the profits were taxed in the United States. The rest was taxed at the special rate in Switzerland, the report said.

Caterpillar executives defend Swiss tax loophole 04/01/14 [Last modified: Tuesday, April 1, 2014 8:17pm]
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