Authorities Raid Caterpillar Offices On Account Of Tax Fraud

Caterpillar is a leading machinery manufacturing company that is literally a pioneer in the field. For several years now, the company is accused of not paying the taxes as it facilitates transfer between the US and foreign subsidiaries. The business practices and tax evasion strategies were scrutinized for a long time and it ended with a raid in three offices, including the headquarters at Peoria.

The headquarters at Peoria, offices in East Peoria and Morton parts distribution center were raided by several federal authorities. It is reported that raid is conducted by Internal Revenue Service, Federal Deposit Insurance Corporation and Department of Commerce. The authorities entered the premises with a search and seizure warrant. As a part of the warrant, the authorities got hold of electronic information and other documents. Caterpillar had no other choice than to cooperate with the officials.

A couple of years ago, a subpoena was issued to Caterpillar asking for documents related to cash movement between the US and foreign subsidiaries of the company. Caterpillar has a subsidiary company called SARL in Switzerland and it is alleged that the company made several payments to SARL to evade taxes. Subpoenas were issued for Caterpillar to submit the information related to resale and purchase of replacement parts and dividend payments.

On February 15th, Caterpillar made it clear that it will cooperate with the investigations and hoped that it won’t affect the liquidity of the company. Switzerland is a tax haven with only 4% tax and it Caterpillar saved millions of dollars in taxes using fake transactions to SARL. At the end of the year, in the non-US subsidiaries, Caterpillar had undistributed profits of $16 billion and $5 billion cash. Caterpillar would have to pay a huge amount of money in tax if the money was sent back to the USA.

In 2014, the Senate ordered a probe on the tax evasion plan formulated by Caterpillar in 1999 with PricewaterhouseCoopers’ auditor. The profits made through sales of machinery parts were sent to Switzerland and this saved $2.4 billion in taxes for Caterpillar over a period of 12 years. The IRS in 2016 fined $2 billion tax as a penalty for tax avoidance. It also canceled $125 million foreign arrangement between the various subsidiaries of the company. Caterpillar was working on proving to IRS that it didn’t violate tax laws.

Despite the cooperation provided by Caterpillar, the federal authorities were determined to raid Caterpillar’s offices. This came as a shocker for the corporate world because a few days ago President Donald Trump endorsed Caterpillar as his favorite company. The former CEO of Caterpillar along with CEOs from various companies met with the president to discuss infrastructure spending, tax reforms, and deregulation.

The present CEO of Jim Umpleby is forced to deal with the highly controversial case of tax appropriation and he has commented that the company was surprised by the federal action. In a letter sent to the employees, he apologized for the present situation the company is in. The shareholders have also sued Caterpillar for deception and misleading statements for the investors.

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