Caterpillar Faces Offshore Tax Scrutiny

 Posted on February 06, 2015 in Taxation Law

The Internal Revenue Service has proposed penalties and taxes worth more than $1 billion on Caterpillar. That announcement came after the Internal Revenue Service went through the company's returns from between 2007 and 2009.

The Internal Revenue Service is specifically looking at profits from a Caterpillar subsidiary in Switzerland. The subsidiary is also currently the subject of an investigation by the Securities and Exchange Commission.

In 1999, Caterpillar via a process of restructuring shifted most of its profits to this subsidiary, and gave it a license to distribute the company's replacement parts for its excavators, and other equipment outside of the United States. According to a Senate investigation, by doing so, Caterpillar managed to save as much as $2.4 billion in taxes between 2000 and 2013. The Senate investigation was specifically looking at how this is tax structure for the Swiss subsidiary helped the company to save as much as $300 million in taxes every year.

The company however claims that all that it did was in complete accordance with tax laws, and were not a violation of any judicial doctrines. Now, the company has admitted that the Internal Revenue Service wants it to pay more than $1 billion in penalties and additional taxes for the years between 2007 and 2009. Additionally, the agency is currently going through the tax filings for after 2009, and may impose taxes and penalties for that period of time as well.

The problem is that Caterpillar has created this subsidiary purely for the purpose of evading taxes, and that gives the Internal Revenue Service a very solid reason to go after the company.