Caterpillar Inc. used offshore subsidiaries in Switzerland and Bermuda to avoid about $2 billion in U.S. taxes from 2000 to 2009, boosting its earnings through a "tax and financial statement fraud," according to a Caterpillar executive's lawsuit.
The company, the world's largest construction-equipment maker, sold and shipped spare parts globally from an Illinois warehouse while improperly attributing at least $5.6 billion of profits from those sales to a unit in Geneva, according to the suit filed by Daniel J. Schlicksup. He was a global tax strategy manager for Caterpillar from 2005 to 2008.
Schlicksup, 49, sued in U.S. District Court in Peoria, Illinois, in 2009, claiming he was moved to a job that limits his career opportunities because he complained to superiors that the "Swiss Structure" ran afoul of U.S. tax rules. He's seeking a court order to give him back his old job and prevent any retaliation. He also seeks stock options that he claims were wrongly withheld as well as legal fees and punitive damages.
His lawsuit, which calls the structure a "tax dodge," followed a request for job protection he filed with the U.S. Department of Labor under provisions of the Sarbanes-Oxley Act, court records show. The law bars retaliation against corporate whistleblowers. Schlicksup declined to comment for this story. His attorney, Dan O'Day, declined to say whether Schlicksup has taken his concerns to the Internal Revenue Service.
Complies With Laws
Caterpillar spokesman Jim Dugan said the company has engaged in no wrongdoing, and its attorneys said in a court filing that Schlicksup's transfer wasn't a demotion. Dugan declined to comment on the suit's specific allegations, saying Caterpillar "complies with applicable tax laws and regulations."
It could be difficult to prove the company underpaid U.S. taxes, said Reuven Avi-Yonah, director of the international tax law program at the University of Michigan Law School in Ann Arbor. IRS officials have had only mixed success recovering large settlements in corporate income-tax cases, and "$2 billion would be an extraordinarily large recovery," said Edward Kleinbard, a law professor at the University of Southern California in Los Angeles and a former corporate tax attorney at Cleary Gottlieb Steen & Hamilton LLP.
Peoria-based Caterpillar, which reported year over year earnings growth exceeding 250 percent in each of the last two quarters, is among several U.S. multinationals asking Congress to end U.S. corporate income taxes on profits earned abroad. The company had $3.7 billion of pretax income last year on $42.6 billion in revenue, 68 percent of which came from offshore.
rest at http://www.bloomberg.com/news/2011-07-08/caterpillar-accused-of-demoting-tax-whistleblower.html
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