According to a company filing, the Internal Revenue Service says that Caterpillar Inc. owes the United States Government back taxes and penalties in the amount of about $2.3 billion. Caterpillar does not agree and says it will continue to vigorously oppose the IRS position. The tax liabilities stem from Caterpillar’s offshore tax strategy and has been steadily increasing while the IRS completes audits of the company’s income tax filings dating back to 2007, some issues carrying back to 2005. The offshore tax which Caterpillar started in 2000 uses a comprehensive accounting of its structure which was first revealed by a Caterpillar tax specialist who became a whistleblower claiming that the company retaliated against him for insisting the tax strategy had problems. A U.S. Senate subcommittee investigation that labeled the tax maneuver an abusive corporate tax shelter.
The tax strategy involved the company’s parts business and a Swiss subsidiary. Profits for the parts sales were recorded in Switzerland — and taxed at a lower negotiated rate than in the United States even though nearly all parts operations remained in the United States. The Swiss subsidiary at the center of the tax strategy also featured prominently in a different investigation that dramatically unveiled itself for the public in the spring of 2017.
The case then went to the U.S. District Court for the Central District of Illinois. In March of last year, federal agents simultaneously raided Caterpillar’s global headquarters in Peoria and facilities in Morton and East Peoria to seize documents and information regarding parts sales, export controls and money transfers between the parent company and overseas subsidiaries, among other items — all with a particular focus on the Swiss subsidiary.
The whistleblower in the case, David Schlicksup, once a member of the Caterpillar accounting team, stands to make up to 30% of what the government recovers in the case.He alleged that the company used the Swiss and Bermuda structure to avoid paying U.S. taxes by moving select profits to offshore shell companies located in Switzerland and Bermuda where the taxes are lower.
Jeffrey Newman represents whistleblowers