Caterpillar at the US Senate

The latest company to come under the spotlight of the US Senate Permanent Sub-Committee on Investigations is heavy-goods manufacturer, Caterpillar.  Here is the report prepared by the Sub-Committee staff in advance of today’s hearing.  There is also a statement from the Committee Chairman, Sen. Carl Levin (D).

The hearing will feature three panels of witnesses and will be streamed here.  The second panel comprises some representatives from Pricewaterhousecoopers.  The Sub-Committee obtained internal documents and communications between the PwC representatives which are referenced in the report.

The key feature of the US tax code that is in question is once again are the provisions that have eroded the effectiveness of the Subpart F anti-deferral regime introduced in the 1960s for passive income earned outside the US.  Under Subpart F this should trigger an immediate tax liability regardless of whether the profits are repatriated but there are a range of provisions that allow a deferral of the tax payment as is the general case with active income.  The scheme put in place by Caterpillar avails of both the manufacturing exemption and the export exemption in the US tax code.  Features such as “check-the box” and transfer-pricing rules also play a role.  Once again there is the accusation that a US company was able to negotiate a “special tax rate” in a low-tax country.

For those whose only interest is a Ctrl-F of the Senate report here is the sole mention of Ireland:

The decline in corporate tax revenues is due in part to more corporate income being reported abroad in low-tax jurisdictions. A number of studies show that U.S. multinational corporations are moving income out of or away from the United States into low or no tax jurisdictions, including tax havens such as Ireland, Bermuda, and the Cayman Islands.