WASHINGTON — Calling Caterpillar Inc., a member of the "corporate profit-shifting club," Sen. Carl Levin accused the manufacturing giant Tuesday of employing an aggressive tax strategy to avoid paying billions of dollars in U.S. taxes.
Levin opened a Senate hearing on the Caterpillar's taxes by detailing a strategy in which the company avoided paying $2.4 billion in U.S. taxes since 2000 by shifting profits to a wholly-controlled affiliate in Switzerland.
Levin, a Democrat from Michigan, chairs the Senate investigations subcommittee. The subcommittee's Democratic staff spent nine months investigating Caterpillar's taxes, generating a report released Monday.
Caterpillar says it complies with all tax laws. Representatives from Caterpillar and accounting firm PricewaterhouseCoopers LLP were scheduled to testify at Tuesday's hearing. The report says Caterpillar paid PricewaterhouseCoopers $55 million to develop its tax strategy.
"Caterpillar is an American success story that produces iconic industrial machines," Levin said. "But it is also a member of the corporate profit-shifting club that has transferred billions of dollars offshore to avoid paying U.S. taxes."
Levin's report raises questions about the validity of the tax strategy but it does not accuse the Peoria, Ill.-based manufacturer of breaking the law.
Sen. John McCain of Arizona, the top Republican on the subcommittee, did not endorse the report. At the hearing, McCain said Caterpillar appears to manage important operations from Switzerland, which could justify the tax strategy.
"In this case, an important factor in Caterpillar's overseas sales seems to be its independent dealer network, which is overseen and managed by Caterpillar's subsidiary in Switzerland," McCain said.
McCain noted that the U.S. has the highest corporate income tax rate among industrialized countries, at 35 percent. McCain said the high rate encourages companies to look for ways to avoid paying U.S. taxes.