US authorities raid Caterpillar over Swiss tax strategy

2 March 2017, US law enforcement officials searched the headquarters of heavy machine manufacturer Caterpillar and two other facilities as part of a tax investigation linked to the firm’s Swiss parts subsidiary, Caterpillar SARL, in Geneva.

In a 2014 report the US Senate permanent subcommittee on investigations said that Caterpillar had adopted “a tax strategy that shifted billions of dollars in profits away from the United States and into Switzerland, where Caterpillar had negotiated an effective corporate tax rate of 4 to 6%.” It claimed that Caterpillar deferred or avoided paying $2.4 billion in US taxes between 2000 and 2012 by shifting more than $8 billion of parts sales to Switzerland.

According to the report, Caterpillar bought parts and resold them to dealers overseas, assigning the profits to the Swiss subsidiary and lowering its US taxes. Caterpillar had no parts warehouses in Switzerland, but 85% or more of profits from Caterpillar’s parts sales outside the US were recorded as coming from SARL. By 2008, Caterpillar had shifted 45% of global revenues and 43% of its profits to the Swiss operation, which employed less than one-half of 1% of Caterpillar’s 118,500 employees worldwide.

Caterpillar said, in its 2016 annual report, that it was “vigorously contesting” the IRS demand. “We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines,” it stated.

The European Union and OECD have both demanded an end to Switzerland’s “harmful” tax practices but a proposed package of corporate tax reforms were rejected by Swiss voters on 12 February.