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US congressional hearing to focus on Caterpillar’s offshore tax arrangements

Bermuda's tax system will tomorrow come under the spotlight again when US construction equipment giant Caterpillar faces a US Senate hearing.

The world's biggest earthmoving and mining equipment maker is to be probed over its offshore tax arrangements which saw $1.5 billion moved to subsidiaries in Bermuda, and Luxembourg.

A total of three current and former Caterpillar executives are expected to testify at the Permanent Sub-committee on investigations, headed by Senator Carl Levein.

The hearing is expected to look at Caterpillar's tax arrangements and corporate restructuring from the late 1990s and early 2000s.

Three staff from global financial services firm PwC, which advised Caterpillar on its tax strategies, are also expected to appear as witnesses.

Richard Harvey, a former Internal Revenue Service official who reviewed court records of a lawsuit involving the restructurings that was settled in 2012, said the court case may point to the focus of the committee's questions.

Mr Harvey, now a tax professor at the Villanova University, said: “One would hope the IRS took a very close look at these transactions.”

Caterpillar moved a replacement parts division to Switzerland in 1999 and the firm's records showed one reason was to reduce tax payments.

And in 2005, other company units were set up in Bermuda and Luxembourg.

Caterpillar chief tax officer Robin Beran, one of the firm's officials called before the Senate subcommittee, said in a memo dated in November 2006: “Two internal reorganisations were completed, leveraging the Bermuda/Lux structure, allowing repatriation of nearly $1.5 billion cash to the US without incremental US tax.”

Caterpillar refused to comment on the firm's tax arrangements and PwC also declined to comment.

Former Caterpillar tax official Daniel Schlicksup sued the company in 2009, claiming he had suffered retaliation from executives after he raised concerns within the firm about its tax dealings.

Mr Schlicksup said Caterpillar's offshore tax arrangements helped it avoid more than $2 billion in US taxes.

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Published March 31, 2014 at 9:00 am (Updated March 31, 2014 at 1:01 am)

US congressional hearing to focus on Caterpillar’s offshore tax arrangements

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