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Caterpillar to face U.S. Senate panel on offshore taxes

March 31, 2014

By Patrick Temple-West and Patrick Temple-West

WASHINGTON (Reuters) – Caterpillar Inc’s offshore tax strategies will come under scrutiny on Tuesday at a U.S. Senate hearing expected to examine dealings by the world’s largest mining and construction equipment maker in Switzerland, Bermuda and Luxembourg.

With many multinationals being criticized for tax avoidance, veteran tax sleuth Senator Carl Levin will chair another session of his Permanent Subcommittee on Investigations, with three current and former Caterpillar executives slated to testify.

Levin’s panel dives deeper than any other on Capitol Hill into the minutia of tax law and accounting, with its Caterpillar probe expected to center on the tax aspects of Caterpillar’s corporate restructurings in the late 1990s and early 2000s.

Big Four accounting firm PricewaterhouseCoopers LLP, which advised Caterpillar on its tax strategies, is also sending three officers to the hearing as witnesses.

A Caterpillar spokeswoman declined to answer questions about the company’s tax strategies. A spokeswoman for Levin declined to comment. PricewaterhouseCoopers also declined to comment.

Levin’s panel has not detailed its findings, but a lawsuit involving the restructurings that was settled in 2012 may offer clues about the hearing’s focus, said Richard Harvey, a former Internal Revenue Service official who reviewed court records from the lawsuit that detailed some of Caterpillar’s dealings.

“One would hope the IRS took a very close look at these transactions,” said Harvey, now a tax professor at Villanova University. He testified before Levin’s committee last year.

Beginning in 1999, Caterpillar shifted a “replacement parts” division from the United States to Switzerland and executives said one purpose was to reduce taxes, according to the records.

In 2005, Caterpillar set up units in low-tax Bermuda and Luxembourg, according to the court filings.

In a memo dated Nov. 21, 2006, Caterpillar chief tax officer Robin Beran said: “Two internal reorganizations were completed, leveraging the Bermuda/Lux structure, allowing repatriation of nearly $1.5 billion cash to the U.S. without incremental U.S. tax.”

Beran is one of the Caterpillar officers set to testify.    He declined to comment on Friday.

Daniel Schlicksup, a former Caterpillar tax official, sued the company in 2009, alleging he was retaliated against by executives for raising concerns internally about its tax dealings.

Schlicksup said Caterpillar’s offshore tax structures helped it avoid more than $2 billion in U.S. taxes, according to his complaint. A lawyer for Schlicksup declined to make his client available for comment.

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