Senate Democrats And Republicans Divided On Caterpillar’s Tax Avoidance

Senate Democrats And Republicans Divided On Caterpillar’s Tax Avoidance

“Caterpillar is an American success story that produces phenomenal industrial machines, but it is also a member of the corporate-shifting club that has shifted billions of dollars in profits offshore to avoid paying U.S. taxes,” Senator Carl Levin (D-MI), chair of the Senate Permanent Subcommittee on Investigations, wrote of American manufacturing giant Caterpillar Inc. on Monday. “Caterpillar paid over $55 million for a Swiss tax strategy that has so far enabled it to avoid paying $2.4 billion in U.S. taxes.”

That incendiary charge is detailed in a report from Levin’s subcommittee. In it, the senator explains that Caterpillar paid PricewaterhouseCoopers LLP $55 million to design a tax strategy that involved the company shifting its supposed foreign profits to a wholly controlled Swiss subsidiary, called CSARL, rather than to its parts business in the U.S. The strategy is not illegal – but only if Caterpillar can prove that the income is, indeed, foreign and not domestic.

The Illinois-based company argues that the income funneled through Switzerland is foreign because the source of the profit is the company’s international parts-distribution division. But Caterpillar has no reported business activities in Switzerland, and the majority of its parts business remains based in the U.S.

Defending the company’s use of the Swiss tax strategy, Julie Legacy, who oversees Caterpillar’s tax operations, argued that “we cannot remain competitive, we cannot create jobs, and we cannot increase exports by incurring unnecessary expenses.”

She added, “And as an American company, we pay the taxes we owe, not more.”

Levin, however, is not buying Caterpillar’s argument. He claims that a “paper change” occurred between Caterpillar and Switzerland that allowed the company’s profits to be subject to a meager 4 percent Swiss tax rate – significantly less than the 35 percent corporate income tax the U.S. imposes on profits made overseas.

Though the committee report questions the tax strategy and its domestic effects, it does not accuse Caterpillar of having broken any laws.

Senate Democrats maintain that it ultimately is up to the Internal Revenue Service to determine whether or not Caterpillar violated a U.S. law.

Meanwhile, their GOP colleagues are standing behind Caterpillar, with some saying the violations are not as serious as those committed by other companies in the past.

Among Caterpillar’s top defenders in the upper chamber is Senator Rand Paul (R-KY), who dismissed Levin’s concerns and even suggested rewarding the country for avoiding U.S. taxes.

“I think rather than having an inquisition, we should probably bring Caterpillar here and give them an award,” Paul said on Tuesday. “You know, they’ve been in business for over 100 years. It’s not easy to stay in business.”

“It is a requirement that you try to minimize your costs. So rather than chastising Caterpillar, we should be complimenting them,” he added.

Paul and others in his party instead blame the U.S. tax code. Ironically, Levin has attempted to address the tax code by introducing legislation that would restrict U.S.-based corporations to shift profits overseas for the purpose of avoiding taxes, but the bill has stalled in the Senate.

Photo: Rrrrred via Flickr

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