US Government Report Accuses Caterpillar of Tax Fraud

According to a new report commissioned by the United States government—potentially in connection with the search warrants executed at the Caterpillar Inc headquarters, last week—determined that the company had, in fact, engaged in tax and accounting fraud involving an impressive network of foreign subsidiaries.

The main findings of this report listed that Caterpillar had avoided reporting on several billion dollars it had brought to the United States from its Swiss unit and other affiliates. As such, the report alleges that Caterpillar returned nearly $8 billion in funds which were originally structured as loans but did not report specifically for accounting or tax purposes.

The author of the report, Leslie A. Robinson is an accounting professor at the Dartmouth College Tuck School of Business. She comments, “Caterpillar did not comply with either U.S. tax law or U.S. financial reporting rules. I believe that the company’s noncompliance with these rules was deliberate and primarily with the intention of maintaining a higher share price. These actions were fraudulent rather than negligent.”

Effectively, in its 2016 annual report, which was filed last month, Caterpillar updated this issue by including that CSARL accounted for most of the previously undistributed profits that came from foreign subsidiaries the company had “determined to be indefinitely reinvested outside the US.”

These profits were taxed in Switzerland, probably because business levies are, in general, much lower than the top US corporate rate of 35 percent. However, the IRS proposed taxing of profits earned from specific machine and other parts transactions by CSARL within the tax years of 2007 to 2012, at higher US rates.

The FDIC was just one of at least three federal agencies to participate in the raid. And now the IRS could force the company to pay as much as $2 billion in taxes and penalties on these profits that had been earned by CSARL.

Caterpillar has responded: “We are vigorously contesting the proposed increases to tax and penalties for these years of approximately $2 billion. We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines.”

More specifically, Caterpillar representative Corrie Scott comments, “We were not provided a copy of the report. We will not offer comment on a report we haven’t seen.”

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