Caterpillar, the corporation that makes bulldozers and other various big yellow machines, has dodged $2.4 billion in U.S. taxes since 2000, according to a report out today from the Senate permanent subcommittee on investigations. The worst part? The manufacturing giant didn’t break any laws by shifting billions of dollars in profits to Switzerland.
The Senate report is the latest dive into multinational corporations — previous targets include Apple, Hewlett-Packard and Microsoft — abusing offshore tax strategies. How do these companies manage to dodge taxes? Easy: The country’s broken tax code.
Since 1999, Caterpillar sent the majority of profits from its replacement parts business into a shell company called CSARL based in Switzerland, according to the report. Over 13 years, CSARL paid a minuscule 4 percent tax rate agreed to with the Swiss government. CSARL racked up roughly $8 billion in profits over that time, sending only 15 percent back to the States, which was taxed by the IRS.
It’s legal because of a simple loophole in the tax code: CSARL’s payments are counted as royalties to its parent company, Caterpillar. So CSARL pays that 15 percent to Caterpillar in the states and keeps the other 85 percent in Switzerland, which is acting as a terrific tax haven.
You can’t blame Caterpillar. After all, the company has not broken any laws. “We comply with the tax laws enacted by Congress, by the states, and by all of the many jurisdictions in which we conduct business,” the company said in a statement.
What’s more, a cottage industry exists for finding these sorts of honeypot deals. According to the Senate investigation, Caterpillar paid PricewaterouseCoopers more than $55 million to find ways to lower its tax liability in the late 1990s.
Sen. Carl Levin, chairman of the subcommittee on investigations, expressed his dismay with Caterpillar and the broken tax code in a statement, saying, “When Caterpillar and its tax advisers launched this tax avoidance scheme, almost nothing changed in the real world. The manufacturing workers who make world-class parts, the managers who operate its parts operations, the warehouses where they are stored — none of that changed. But in the fantasy land that is international tax law, tax lawyers waved a magic wand to make millions of dollars in U.S. taxes disappear.”
Despite some of the country’s biggest corporations exploiting massive and blatant holes in the tax code, Congress hasn’t moved an inch. While Levin has done his due diligence and exposed the issues, companies can still save millions — and, in the case of Caterpillar, billions — in taxes while effectively still operating as a U.S. company.
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Bill Bradley is a writer and reporter living in Brooklyn. His work has appeared in Deadspin, GQ, and Vanity Fair, among others.
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