Caterpillar’s Tax Problem

Companies looking for tax loopholes or ways to lower their tax burden is nothing new. Caterpillar is the latest company to head to Capitol Hill to explain its aggressive strategy to avoid paying billions of dollars in U.S. taxes.

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Companies looking for tax loopholes or ways to lower their tax burden is nothing new. Many U.S.-based companies will incorporate overseas for taxes purposes, while others will stockpile offshore profits to avoid the federal taxes the money would be subject to if brought into the U.S.

A March 12, 2014 Bloomberg article states that:

The multinational companies have accumulated $1.95 trillion outside the U.S., up 11.8 percent from a year earlier, according to securities filings from 307 corporations reviewed by Bloomberg News. Three U.S.-based companies  Microsoft Corp. (MSFT), Apple Inc. and International Business Machines Corp.  added $37.5 billion, or 18.2 percent of the total increase.  

Time and again, congress decides to look into these corporate maneuvers, evaluating their legality, knowing full well that offshore profits of U.S. companies are piling up. In an AP story this morning, Caterpillar Inc. is the latest company heading to Capitol Hill to explain its aggressive strategy to avoid paying billions of dollars in U.S. taxes.

According to the report, Caterpillar has avoided paying $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.

The report says Caterpillar paid PricewaterhouseCoopers $55 million to develop its tax strategy. The report raises questions about the validity of the tax strategy, but does not accuse the Peoria, Ill.-based manufacturer of breaking the law.

Julie Lagacy, a Caterpillar vice president, said in a statement that the company complies with all tax laws. She said Caterpillar pays an effective income tax rate of 29 percent, among the highest for multinational manufacturers. According to another Bloomberg article:

“What Caterpillar did here is pretty routine U.S. multinational tax planning,” said Kenneth Kies, a Washington tax lobbyist who represents Caterpillar. “This is not radical cutting-edge tax planning. This is pretty normal stuff.”

Senator John McCain of Arizona told Bloomberg News in a brief interview March 28 that Caterpillar’s actions weren’t “on the level” of Apple’s and that he and Senator Carl Levin of Michigan “have a disagreement about the degree of the violations.”

Right now, Congress continues to try and find new ways to tap into the nearly $2 trillion stash of offshore cash. In January, a bipartisan plan looked at bringing some of that cash home to the U.S. with the goal of using it to help rebuild roads and bridges. It would allow companies to bring a limited amount of overseas money to the U.S. without it being taxed. In turn, companies would have to put some of that money in bonds sold to fund rebuilding America’s infrastructure.

What do you think about companies stockpiling money in other countries? Is this just the way business is done, are companies cheating the U.S. out of tax revenue or should there be some sort of compromise in the middle?


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