Federal law enforcement officials from three federal agencies raided three central Illinois facilities of manufacturer Caterpillar as part of an investigation the company said may be related to business with its Swiss subsidiary CSARL. Officials from the IRS, Department of Commerce and the Federal Deposit Insurance Corporation Office of Inspector General searched the Peoria, Illinois, headquarters of Caterpillar, one of the world‘s largest makers of construction and other heavy equipment. Facilities in East Peoria and Morton, Illinois, also were raided under a federal warrant, U.S. Attorney‘s office spokeswoman Sharon Paul said.
“We believe the execution of this search warrant is regarding, among other things, export filings that relate to the CSARL matter,” Caterpillar said in a statement , referring to its Swiss subsidiary.
Caterpillar told the Securities and Exchange Commission in a filing last month that the IRS had notified the company it owed $2 billion more in taxes for the years 2010 to 2012 because of profits from its Swiss unit. Caterpillar said it would “vigorously contest” the tax bill.
Two years ago the SEC notified Caterpillar that it was conducting an “informal investigation” relating to CSARL and asked the company to preserve relevant documents. A 2014 report by U.S. Senate Democratic staff said that Caterpillar had avoided paying $2.4 billion in U.S. taxes since 2000 by shifting profits to the affiliate in Switzerland. The report said Caterpillar paid PricewaterhouseCoopers LLP $55 million to develop the tax strategy. Under the strategy, Caterpillar transferred the rights to profits from its parts business to a wholly controlled Swiss affiliate called CSARL, even though no employees or business activities were moved to Switzerland, the report said. In exchange, CSARL paid a small royalty, and the income was taxed at a special rate of 4 to 6 percent that Caterpillar negotiated with the Swiss government, the report said.
Before the arrangement, 85 percent of the profits from the parts business were taxed in the U.S., the report said. Afterward, only 15 percent of the profits were taxed in the U.S. The rest was taxed at the special rate in Switzerland, the report said. Caterpillar said in a recent filing with the SEC that it was “vigorously contesting” a notice from the IRS that it owed $2 billion more in U.S. taxes for the years 2010 to 2012 from profits earned by the Swiss unit CSARL.
Caterpillar recently announced it plans to move its global headquarters and about 300 top jobs to the Chicago area after decades in Peoria. Caterpillar also scrapped plans to build a new headquarters in downtown Peoria, which is located about 175 miles southwest of Chicago.