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Caterpillar cooperates with IRS as it insists Swiss-made profits are legal
Original source: Chicago Business Journal

Caterpillar CEO Jim Umpleby says his company is fully cooperating with the IRS, but new tax laws may not change the way the company does business.

The heavy-equipment maker headquartered in Deerfield, Illinois was accused of tax and accounting fraud last March in a report commissioned by the federal government. The company allegedly created a strategy for bringing back to the United States money earned overseas, but avoided paying U.S. taxes on that income.

“We’re a values-based company,” Umpleby said, per a Tuesday report in The Wall Street Journal. “We’re cooperating, and we’re hopeful that that issue will be resolved in an expeditious manner.”

Federal investigators have been looking into Caterpillar’s tax affairs since a 2014 Senate hearing found that the company cut its tax bill by $2.4 billion over 13 years by using complex strategies and one of the company’s Swiss subsidiaries. The company has paid an effective tax rate as low as 4 percent.

The recently passed tax law slashes the U.S. corporate tax rate from 35 percent and grants companies a one-time tax cut on earnings and cash held outside the U.S. But those perks may not incentivize companies like Caterpillar (NYSE: CAT) to change their business practices.

A tax shelter must have “economic substance”or a legitimate business purpose for entering into it, according to federal tax law. That means it can’t be employed solely to avoid taxes. Based on that definition, Caterpillar continues to argue that its Swiss subsidiary is fully legal.

“The tax bill won’t cause Caterpillar to close up shop in Switzerland, just the opposite,” Elise Bean, who oversaw a Senate subcommittee’s investigation of the Swiss subsidiary, told The Journal.

Caterpillar is a leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. In 2016, the company’s sales and revenues hit $38.54 billion. The company has more than 12,000 employees in central Illinois.

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