On March 2 US federal agents raided three Caterpillar buildings in Peoria, Illinois – including Caterpillar’s headquarters – to execute search warrants.
The warrants are understood to be related to a US Internal Revenue Service investigation into Caterpillar’s tax practises, centring on how it used Swiss entity Caterpillar SARL to minimise the tax it paid in the US.
The IRS is seeking $US2 ($A2.6) billion in back taxes and penalties.
Barr was US Attorney General from 1991 to 1993 under President George Bush and is currently counsel to the law firm Kirkland & Ellis.
Caterpillar CEO Jim Umpleby said he had asked Barr – who had no prior connection with Caterpillar – to “draw on his experience and that of his colleagues at Kirkland & Ellis and other advisers to take a fresh look at Caterpillar’s disputes with the government, get all the facts and then help us bring these matters to proper resolutions based on the merits”.
The IRS investigation has stemmed from a report by the US Permanent Subcommittee of Investigations that said its investigation showed “another detailed case study of a US multinational shifting taxable profits to a foreign affiliate in tax haven to defer or avoid paying US taxes”.
The subcommittee previously looked into tech players and Caterpillar was its first manufacturing target.
The subcommittee alleged Caterpillar started moving profits from its aftermarkets parts business – parts manufactured by third party suppliers largely located in the US – to the Swiss subsidiary in 1999 to take advantage of a 4%-6% tax rate it had negotiated in Switzerland.
According to the subcommittee’s report, Caterpillar paid PricewaterhouseCoopers more than $55 million to develop and implement the “Swiss tax strategy” and that Caterpillar shifted $8 billion in taxable income to Switzerland.
The case came to the subcommittee’s attention thanks to a civil lawsuit filed by a former Caterpillar employee who had served as its global tax strategy manager.
According to the lawsuit, around 1999 Caterpillar designated Swiss affiliate Caterpillar SARL as its “global purchaser” of third-party manufactured replacement parts instead of Caterpillar Inc and then began attributing profits from the non-US parts to Switzerland instead of the US, substantially lowering its tax bill.
