In Probe Related To Swiss Unit, U.S. Authorities Raid Caterpillar Offices

Three central Illinois facilities of manufacturer Caterpillar were raised by federal law enforcement officials on Thursday. The raids, being conducted as part of an investigation, may be related to business with its Swiss subsidiary CSARL, the company said.

Caterpillar is one of the world’s largest makers of construction and other heavy equipment and its Peoria, Illinois, headquarters of the company was also raided by officials from three federal agencies, some wearing jackets that said “police, federal agent”.

U.S. Attorney’s office spokeswoman Sharon Paul said that facilities in East Peoria and Morton, Illinois, also were raided under a federal warrant.

“We believe the execution of this search warrant is regarding, among other things, export filings that relate to the CSARL matter,” Caterpillar said in a statement later on Thursday, referring to its Swiss subsidiary.

The company was cooperating with law enforcement, Caterpillar spokeswoman Corrie Heck Scott said.

The Federal Deposit Insurance Corp.’s office of inspector general, the U.S. Department of Commerce Office of Export Enforcement and the Internal Revenue Service’s criminal investigation unit were included in the agencies involved in the search, Paul said.

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 told the Securities and Exchange Commission in a filing last month. However there was no clarity on the exact reason for the raid. Caterpillar said it would “vigorously contest” the tax bill.

“We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines,” Caterpillar said.

Two years ago the SEC asked Caterpillar to preserve relevant documents after it notified the company that it was conducting an “informal investigation” relating to CSARL.

By shifting profits to the affiliate in Switzerland, Caterpillar had avoided paying $2.4 billion in U.S. taxes since 2000, a 2014 report by U.S. Senate Democratic staff said.

To develop the tax strategy, PricewaterhouseCoopers was paid $55 million by Caterpillar, the report said. The report said that even though no employees or business activities were moved to Switzerland, Caterpillar transferred the rights to profits from its parts business to a wholly controlled Swiss affiliate called CSARL under the strategy.

The report said that Caterpillar negotiated taxes at a special rate of 4 to 6 percent on the income with the Swiss government and in exchange, CSARL paid a small royalty.

The report further said that 85 percent of the profits from the parts business were taxed in the U.S. before the arrangement. Later 85 percent of the profits were taxed at the special rate in Switzerland while the rest were taxed in the U.S.

For the years 2010 to 2012 from profits earned by the Swiss unit CSARL, it was “vigorously contesting” a notice from the IRS that it owed $2 billion more in U.S. taxes, Caterpillar said in a filing with the SEC last month.

“We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines,” Caterpillar said.

(Adapted from AFP)

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