In annual tax filings, Caterpillar has revealed that the U.S. Internal Revenue Service (IRS) has increased proposed back taxes and fines in a case surrounding an alleged offshore tax plan to $2.3 billion. The company contends, however, that it operated within tax laws and will continue to fight the case.
Within Cat's 10-K report submitted February 15 to the U.S. Securities and Exchange Commission, Cat said the IRS had completed a review of tax returns through a period from 2010 to 2012.
"On January 31, 2018, we received a Revenue Agent's Report from the IRS indicating the end of the field examination of our U.S. income tax returns for 2010 to 2012. In the audits of 2007 to 2012 including the impact of a loss carryback to 2005, the IRS has proposed to tax in the United States profits earned from certain parts transactions by CSARL, based on the IRS examination team's application of the 'substance-over-form' or 'assignment-of-income' judicial doctrines," the filings read. "We are vigorously contesting the proposed increases to tax and penalties for these years of approximately $2.3 billion. We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines. We have filed U.S. income tax returns on this same basis for years after 2012."
The IRS investigation is looking into allegations that Caterpillar moved profits from parts sales through a subsidiary in Switzerland, where they were taxed much lower than in the U.S., while the company's parts operations remained within America. Cat's Peoria offices were raided in March 2017 after the IRS challenged the company's taxes for the period from 2007 to 2012.
The investigation is ongoing, but Caterpillar said it does not expect any damage to its financial standing or operations going forward.
"Based on the information currently available, we do not anticipate a significant increase or decrease to our unrecognized tax benefits for this matter within the next 12 months. We currently believe the ultimate disposition of this matter will not have a material adverse effect on our consolidated financial position, liquidity or results of operations."
