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Offshore taxes: Senate scrutinizes Caterpillar's subsidiary use

Individuals with assets abroad aren’t the only taxpayers affected by the recent U.S. crackdown on offshore accounts.

Businesses are affected as well.

In this post, we will take note of a recent U.S. Senate report suggesting that a prominent U.S. company tried to avoid income taxes by using a Swiss subsidiary.

The company in question is Caterpillar, a maker of heavy equipment.

The U.S. Senate report on the company was issued by the Permanent Subcommittee on Investigations, chaired by Sen. Carl Levin. Sen. Levin convened a hearing last month that focused on the alleged role of Swiss banks in facilitating tax evasion by wealthy U.S. taxpayers.

But of course corporations are taxpayers too, and now Sen. Levin has set his sights on one such taxpayer: namely Caterpillar.

Sen. Levin asserts that transfers of billions of dollar in profits from Caterpillar to a Swiss subsidiary over a multi-year period were motivated solely by tax considerations, not real business interests.

Sen. Levin and the investigators for his committee did not offer any opinions on whether Caterpillar’s tax strategy was legal. But the investigations subcommittee may hold a hearing to look more closely at the issues involved.

It should be noted, however, that the distinction between tax avoidance and tax evasion is a crucial one. This is true not only of offshore accounts, but in other tax contexts as well.

After all, seeking to plan transactions strategically in order to avoid or minimize tax liability is a perfectly acceptable activity in our society. It is not the same as tax fraud or tax evasion.

In short, there should be no rush to judgment against Caterpillar or any other taxpayer that aggressively tries – through legal means – to avoid paying more taxes than it has to.

Source: The New York Times, "Senate Report Says Caterpillar Used Swiss Subsidiary to Reduce Taxes," Mary Williams Walsh, March 31, 2014

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