Caterpillar Faces IRS Scrutiny of Off-Shore Profits

Shifting foreign part-sales profits to a Swiss subsidiary – a tactic Cat says ‘complied with applicable tax laws’ – saved $2.4 billion in taxes over 12 years
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In February, Caterpillar said the U.S. Internal Revenue Service proposed tax increases and penalties of about $1 billion after it examined the company’s returns from 2007 to 2009. The IRS wants to tax profits from CSARL, a Caterpillar parts subsidiary based in Switzerland. CSARL is also being investigated by the Securities and Exchange Commission.

In 1999, Caterpillar shifted the majority of profits to CSARL by giving it a license to distribute all of the company's replacement parts outside the U.S. The tactic saved the company $2.4 billion in U.S. taxes from 2000 to 2012, according to a 2014 Senate investigation.

"We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines," Caterpillar said in a filing with the Securities and Exchange Commission.

Caterpillar said it expects the IRS to examine its 2010 to 2012 returns this year. Caterpillar used the same tax strategies during those years, so experts say it might be subject to additional penalties.

(more on IRS' Caterpillar investigation . . . )