As the arrangement was described by Reuven Avi-Yonah, a University of Michigan tax expert scheduled to testify at todays hearing, when parts were destined for U.S. dealers, CSARL would turn them over to Caterpillar at no profit, and CAT would report the sale to the dealers to the IRS. If they were for overseas dealers, CSARL would book the sale as its own, and it would be reported only to Swiss authorities, who charged CSARL (that is, Caterpillar, wink wink) a tax rate of only 4% to 5%. The only change was bookkeeping. The parts were shipped in and out of Morton, as before. Caterpillar still handed the shipping, as before. CSARL had no warehouse of its own, in Switzerland or anywhere else. Its parts werent even physically separated from others in the Morton facility — they were even kept in the same bins, and just distinguished by a computer entry. At least one executive in Cats tax planning department questioned whether the new arrangement would pass muster with the IRS, which frowns on maneuvers designed only for tax avoidance. The executive, Global Tax Strategy Manager Daniel J. Schlicksup, called the lack of a business rationale the pink elephant issue worth a billion dollars on the balance sheet. Schlicksup claims his career was effectively short-circuited at Cat after he raised the issue.
Posted on: Wed, 02 Apr 2014 03:03:46 +0000