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Caterpillar Bulldozes Tax Code Like Apple, Google & Facebook, Senators Allege
Photo Credit: Forbes Business

Caterpillar Bulldozes Tax Code Like Apple, Google & Facebook, Senators Allege

Apr 1 2014, 7:08pm CDT | by

Caterpillar sidestepped $2.4 billion in U.S. taxes over 13 years by shifting profits to Switzerland, claims a report  by the Senate Permanent Subcommittee on Investigation . Senator Carl Levin (D-MI...

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17 weeks ago

Caterpillar Bulldozes Tax Code Like Apple, Google & Facebook, Senators Allege

Apr 1 2014, 7:08pm CDT | by

Caterpillar sidestepped $2.4 billion in U.S. taxes over 13 years by shifting profits to Switzerland, claims a report  by the Senate Permanent Subcommittee on Investigation . Senator Carl Levin (D-MI) grilled execs and PricewaterhouseCoopers accountants over Caterpillar’s offshore move of 85% of its parts sales. Most of Caterpillar’s parts business remains in the U.S., including employees and execs, the report says. Only 65 of over 8,000 parts employees are in Switzerland, claims Sen. Levin, noting that “nothing changed in the operations.”

Sen. Levin called it a sweetheart “tax deal pure and simple to shift profits between related parties.” But Caterpillar V.P. Julie Lagacy defended the deal saying it was legit. This echoes others who have appeared before Levin, including Apple CEO Tim Cook. The biggest surprise of the hearing was the Republican pushback defending Caterpillar and noting that the tax code was to blame.

In fact, Sen. Rand Paul, R-Ky., went so far as to suggest that Caterpillar deserved an award, not an inquisition. Sen. Paul said Caterpillar and its accountants have an obligation to shareholders to minimize their taxes. The hearing was perhaps most uncomfortable for the accountants asked about emails that seemed to poke fun at the fact that they might be retired by the time of an audit.

Nevertheless, there was nothing definitive in the hearing, other than that taxes are terribly complex, and that multinational companies can and do try to move things around to save. Apple’s Tim Cook testified to the same effect, though without the Republican support Caterpillar mustered.

Individuals may scratch their heads at how U.S. multinational companies manage to plop profits offshore. After all, the Swiss banking scandals since 2008 make it clear that for individuals, everything is income worldwide. Multinational companies are different, and even “stateless” income is possible.

Yet Sen. Levin and others would like to see more harmony in the tax code and a tightening of this “stateless” income. Tax havens like Ireland are favored by global giants like Apple, Google, HP, Facebook and Twitter. In May 2013, the Senate Permanent Subcommittee on Investigations said Apple avoided $9 billion in U.S. taxes in 2012 alone via offshore units with no tax home. Apple’s CEO Tim Cook testified it was nothing illegal.

Calling it the “holy grail of tax avoidance,” Sen. Levin claimed that Apple saved billions by claiming companies registered in Ireland are not tax resident in any country. Even Facebook flipped more than $700 million to the Cayman Islands as part of a “Double Irish” tax reduction strategy. Google used the Double Irish and the Dutch Sandwich , saving billions in U.S. taxes. No, these aren’t food products.

The Double Irish involves forming a pair of Irish companies to transform payments on intellectual property into tax-deductible royalty payments. Google and Microsoft cut their overseas tax rates to single digits with Dublin-registered subsidiaries designated as tax resident in Bermuda. Google and Apple have Irish-registered and tax resident subsidiaries that make sales to customers.

Global companies like Apple, Starbucks and Hewlett-Packard put income in foreign pockets in ways the IRS doesn’t like. And the IRS isn’t alone in its criticism. The G20 countries and the Organization for Economic Co-operation and Development (OECD ) call it tax manipulation. The OECD, which advises the G20 on tax and economic policy, says existing national tax enforcement regimes just don’t work.

The OECD plan claims that companies like Apple and Google avoid billions in taxes. The G20 is made up of 19 leading world economies plus the European Union. It too has voiced support for a fundamental reassessment of the rules on taxing multinationals. And in a sense, the Republicans defending Caterpillar are right that the U.S. tax code seems to encourage all this behavior.

Some companies say they would like nothing better than repatriating profits to the U.S. if they could only do it in a way that won’t be taxed. The amounts at stake are staggering. U.S. companies are said to have more than $1.5 trillion offshore. Most claim that they must keep the money there to avoid the taxes they would face by bringing it back to the U.S.

“We must address the persistent issue of ‘stateless income,’ which undermines confidence in our tax system at all levels,” U.S. Treasury Secretary Jack Lew has said. Sadly, retooling the law, even if there were agreement in Congress, will take time. Meanwhile, despite the hearings and theatrics, little seems likely to change.

You can reach me at Wood@WoodLLP.com . This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Source: Forbes Business

 
Update
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7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the De ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Rakyat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Da ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in compensat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
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4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri Mustapa Moha ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
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3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an alloca ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
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2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Sc ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
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1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damans ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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