Securities and Exchange Commission concludes probe on Caterpillar while IRS, federal grand jury continue investigation

The U.S. Securities and Exchange Commission finished its investigation on Caterpillar Inc. regarding the company's probable tax evasion. Investigations by the Internal Revenue Service and a federal grand jury, however, are still on going regarding the firm's Swiss unit Caterpillar SARL or CSARL.

In 2014, The U.S. Senate began the hearing for Caterpillar, which allegedly tried to evade taxes by transferring overseas or non-U.S. sales and distribution of its replacement parts via its subsidiary in Switzerland, CSARL, the Chicago Tribune reported earlier last year.

Probes from the Senate Permanent Subcommittee on Investigations revealed that Caterpillar was able to get a tax rate of 4% to 6% from the business compared to the U.S. tax rate of 35% it should have been paying. The equipment manufacturer was then able to save roughly $2.4 billion in local taxes from 2000 to 2012 according to reports.

Caterpillar's equipments have replacement parts produced mostly by local third-party suppliers. Eighty-five percent of the sales of these parts were attributed to its U.S. main office before the year 2000, Quartz explained. Caterpillar then hired PricewaterhouseCoopers to help the manufactuter change its corporate structure so that all of the parts' sales will be attributed to CSARL.

The IRS studied Caterpillar's previous tax filings between 2007 and 2009, according to the Wall Street Journal. Records showed that the agency may fine the company tax hikes and penalties of some $1 billion or even higher if the alleged tax evasion practices were done until after 2009, the Wall Street Journal noted. The company is contesting the amount of proposed penalties via appeals.        

The IRS also has another case with Caterpillar in 2015 where the agency did not approve of a supposed foreign tax credits worth $135 million for the manufacturer. The company booked a net charge of $42 million in the third quarter of 2015 allotted for $68 million worth of unrecognized tax benefits, which was partly offset by $26 million of tax benefits from refund claims.  

The SEC informed Caterpillar last December that its investigation was concluded. The IRS and a federal grand jury, however, are still doing their own probe on the matter. Latest records from Caterpillar denied illegal acts on any tax filing on the replacement parts business. A company spokeswoman did not comment on any of the regulators' investigation.

Tags

Securities and Exchange Commission, Caterpillar, Caterpillar SARL, Tax Evasion, Internal Revenue Service, CSARL, IRS, replacement parts

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