Caterpillar, a Trump favourite, under pressure
The huge Caterpillar wheel loader really impressed Donald Trump. The US president marvelled at the massive yellow vehicle, part of the company’s presentation for the White House’s ‘‘ Made in America Week.” Even before the exhibition in Washington, Trump had made clear his appreciation of the industrial equipment manufacturer, saying: “I love Caterpillar.” Yet, as the president declared his love, the company was facing tough scrutiny by US regulators.
Caterpillar, the 92-year-old company Trump considers the embodiment of US manufacturing might, is under investigation for tax evasion.
Billions of dollars are alleged to have bypassed the US Treasury. And while the company has acknowledged in Securities and Exchange Commission (SEC) filings that the IRS tax authority is demanding more than $2 billion, it vigorously contests those allegations.
However, Caterpillar’s stance did not stop tax investigators from moving forward. On March 2, they arrived, armed with a search warrant, at the company’s headquarters in Peoria, in the mid-western US state of Illinois.
There were also raids at other offices, with IRS investigators assisted by agents from the Commerce Department and the deposit guarantee service FDIC. The authorities had sought electronic data in connection with the tax allegations, Caterpillar said afterwards, adding that it had cooperated.
Leading up to the raids, which the company said came as a complete surprise, were years of mounting friction between Caterpillar and US regulators.
Central to the conflict is whether Caterpillar illegally used a Swiss subsidiary to book profits from its lucrative international spare parts business in order to minimize its US tax burden.
The allegations, which Caterpillar strenuously denies, were first made public at a hearing in the US Senate in 2014. It was said that the firm had hidden nearly $8 billion in revenue from the Treasury.
The SEC was initially in charge of the case and, according to Caterpillar officials, suspended the investigation in 2015 without consequences. The SEC would not comment at the time.
However, the IRS raids in March have made clear that Caterpillar is not yet out of the woods, and The New York Times reported that the company was under pressure again — from a new investigation.
The newspaper quoted an 85-page government-commissioned study that found: “Caterpillar did not comply with either US tax law or US financial reporting rules.”
The disregard of the rules was deliberate rather than negligent, the investigation concluded. If these allegations prove true, they could lead to Caterpillar’s management facing criminal penalties. However, it remains unclear how big the danger is for Caterpillar. The company maintains that it has followed the law throughout. Neither the company nor US authorities will comment on the details or status of the investigation.