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Republicans defend Caterpillar, blast U.S. tax code at hearing

The Caterpillar Visitors Center is seen in Peoria, Illinois, November 26, 2013. REUTERS/Jim Young
The Caterpillar Visitors Center is seen in Peoria, Illinois, November 26, 2013. REUTERS/Jim Young

By Patrick Temple-West

WASHINGTON (Reuters) - The broken U.S. tax code encourages companies to shift profits overseas, Republican senators said on Tuesday, seeking to deflect criticism from Caterpillar Inc at a hearing on how it allegedly avoided paying $2.4 billion in taxes.

The world's largest maker of mining and construction equipment was only acting in its shareholders' best interests, and in a wholly legal manner, Republicans said at the Senate Permanent Subcommittee on Investigations hearing.

"We've got the wrong people on trial here. The tax code needs to be on trial here," said Republican Rand Paul, a libertarian and potential 2016 White House contender.

Republican Rob Portman said the 35-percent U.S. corporate income tax rate drives capital and investment overseas. Republicans have long sought a cut in the corporate tax rate.

The hearing marked the latest foray by Congress into corporate tax management issues, with Democrats largely scolding corporate managers and some Republicans coming to their aid.

Past hearings held by the Senate subcommittee have focused on the tax avoidance strategies of Apple Inc, Hewlett-Packard Co and Microsoft Corp.

The subcommittee released a report on Monday that said Caterpillar avoided paying $2.4 billion in U.S. taxes from 2000 through 2012 by moving profits from sales of replacement parts through a low-tax unit it set up in Switzerland.

Subcommittee Chairman Carl Levin, a Democrat, said Caterpillar set up the Swiss unit expressly to avoid U.S. taxes.

The company defended the Swiss structure as legal and a standard business strategy for many multinational companies.

"Caterpillar stands by this structure," said Julie Lagacy, vice president of Caterpillar's finance services division, according to testimony released at of the hearing.

A Caterpillar executive acknowledged that there was no business advantage to the Swiss arrangement other than tax avoidance, the subcommittee said in its report.

The U.S. Internal Revenue Service declined to comment on Caterpillar's taxes.

Along with three Caterpillar executives, representatives of Big Four accounting firm PricewaterhouseCoopers LLP, defended the tax advice it gave Caterpillar on its Swiss deal.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh, Bernard Orr)

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