Federal agents raid Caterpillar offices in Illinois
The exact reason for the raid was unclear, but Caterpillar told the Securities and Exchange Commission in a filing last month that the IRS had notified the company it owed $2 billion more in taxes for the years 2010 to 2012 because of profits from its Swiss unit. Caterpillar said it would “vigorously contest” the tax bill.
Two years ago the SEC notified Caterpillar that it was conducting an “informal investigation” relating to CSARL.
SEC spokesmen in Washington declined to comment Thursday.
A 2014 report by U.S. Senate Dem- ocratic staff said that Caterpillar had avoided paying $2.4 billion in U.S. taxes since 2000 by shifting profits to the affiliate in Switzerland.
The report said 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 Swiss affiliate called CSARL, even though no employees or business activities were moved, the report said.
Before the arrangement, 85 percent of the profits from the parts business were taxed in the U.S., the report said. Afterward, only 15 percent of the profits were taxed in the U.S.
Shares of Caterpillar went into steep decline just before noon, falling almost 5 percent before recovering slightly to close at $94.36.
“There are collateral consequences that can be as significant, if not more significant, than the fines themselves” that companies must pay in such cases, said Thomas Cooke, professor at Georgetown University’s McDonough School of Business.
One potential consequence Cooke noted: The company could be stripped of its ability to bid for federal contracts just as President Donald Trump’s $1 trillion plan to shore up the nation’s roads, bridges and airports is being put forward.