Caterpillar Said to Be Focus of Senate Overseas Tax Probe

A U.S. Senate investigative panel is examining Caterpillar Inc. (CAT) and whether the company improperly avoided U.S. taxes by moving profits outside the country, said three people familiar with the inquiry.

The Senate’s Permanent Subcommittee on Investigations will hold a hearing in early April, said two of the people. They spoke on condition of anonymity before an official announcement.

Rachel Potts, a spokeswoman for Caterpillar, declined to comment. Two staff members for the subcommittee declined to comment.

In 2009, Daniel Schlicksup, an employee who had worked on tax strategy, alleged in a lawsuit in federal court that Caterpillar used a “Swiss structure” to shift profits to offshore companies and avoid more than $2 billion in U.S. taxes. He also alleged that Caterpillar used a “Bermuda structure” involving shell companies to return profits to the U.S. without paying required taxes.

According to Schlicksup’s complaint, the Swiss structure involved “many shell corporations with no business operations,” in which the management of profitable businesses was technically shifted to Switzerland while actually remaining in the U.S.

Lawsuit Settled

Schlicksup’s lawsuit, which alleged that Caterpillar executives retaliated against him, was settled in 2012, according to court filings. The company denied the allegations, which Bloomberg News first reported in 2011.

The Senate subcommittee, led by Democrat Carl Levin of Michigan, has been examining tax avoidance by multinational companies. Microsoft Corp., Hewlett-Packard Co. and Apple Inc. have been the subjects of previous hearings by the panel.

The 2013 investigation into Apple uncovered a subsidiary that earned $30 billion over four years with no home for tax purposes.

The subcommittee also has investigated Swiss banks such as Credit Suisse Group AG for aiding tax evasion by wealthy Americans.

In 2013, Caterpillar, based in Peoria, Illinois, reported earning 62.2 percent of its pretax income outside the U.S. The company, which had $55.7 billion in revenue in 2013, is the largest maker of construction and mining equipment.

Deferring Taxes

The U.S. has the industrialized world’s highest corporate tax rate at 35 percent, giving companies an incentive to book profits overseas. Companies based in the U.S. can defer U.S. taxes on their foreign income until they bring profits home.

As of Dec. 31, Caterpillar had $17 billion in accumulated overseas profits that haven’t been taxed by the U.S., up from $11 billion three years earlier. The largest U.S. companies have accumulated $1.95 trillion outside the country, up $206 billion from last year, according to a Bloomberg News analysis.

Caterpillar said in a securities filing last month that it has received notices from the Internal Revenue Service saying that it owes more in federal taxes.

“We disagree with these proposed adjustments, and to the extent that adjustments are assessed upon completion of the field examination relating to these matters, we would vigorously contest the adjustments in appeals,” Caterpillar said in the filing.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Jesse Drucker in Rome at jdrucker4@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Don Frederick

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