Caterpillar on the defensive in Senate tax strategy hearing

By WEEK Producer

April 1, 2014 Updated Apr 1, 2014 at 10:38 PM CDT

WASHINGTON, D.C. -- Caterpillar is on the defensive.

The Peoria-based manufacturing giant is the focus of a Senate subcommittee hearing into the company's offshore tax strategies.

In a scathing report, Michigan Senator Carl Levin said Caterpillar engaged in an aggressive tax strategy to shift profits overseas in order to avoid paying $2.4 billion in U.S. Taxes since 2000.

Levin said Caterpillar shifted profits to an affiliate in Switzerland.

The Senator said the strategy was built around redirecting taxable profits from sales of Caterpillar branded replacement parts to Switzerland.

“After Caterpillar put that strategy in place, it went from reporting about 85-percent or more of its foreign parts profits on its U.S. tax return to reporting 15-percent or less to Uncle Sam and shifting the remaining profits offshore to its Swiss affiliate,” Levin said.

Caterpillar officials issued a press release prior to the hearing.

Caterpillar Vice President Julie Lagacy, quoted in prepared testimony released by caterpillar on Monday, said the company's effective income tax rate is 29-percent.

She said that is higher than the average income tax rate for U.S. corporations. Lagacy went on to say Caterpillar is complying with U.S. tax laws.

She is also quoted as saying Caterpillar has paid approximately $1.8 billion in federal income tax over the last three years.