Not only did the arrangement change nothing about the actual operations of the parts operation, it changed nothing on the financial statements that Caterpillar shows the public and investors. That is because Caterpillar and CSARL are related companies but the parent company issuing a consolidated financial statement. So Caterpillar still shows the 85% of the profits sent to CSARL as its own profits on the consolidated public financial statement while telling Uncle Sam that those profits belong to its Swiss affiliate CSARL. Caterpillar has provided several justifications for this change in profit allocation which appear to be inconsistent with the economic reality of its operations. Caterpillar claims that the company merely cut out a redundant
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Each performing essentially the same function working with Caterpillar foreign dealers to sell and service Caterpillar parts and machines. In 1999 part of the Swiss tax strategy Caterpillar consolidated several of those marketing companies into CSARL. Just a few years later in 2002 Caterpillar merged into CSARL another of its marketing companies called CACO which represented Caterpillar with its dealers in Latin America, the Caribbean, and Canada. In connection with the CACO merger, PWC, the same firm that designed the CSARL transaction, evaluated the intangible marketing assets being transferred from CACO to CSARL, and concluded that they had little value. In other words, when CSARL was the recipient of the marketing intangibles from CACO, Caterpillar said the value was negligible. But when valuing those same intangibles as provided by CSARL, Caterpillar claimed they were so valuable they justified transferring 85% of its …show more content…
Caterpillar builds a type of mining truck, the 797, which works in mines around the world, for instance in the Alberta tar sands in Canada. Major components are designed, manufactured, and assembled in the United States. The engine is manufactured by Caterpillar in Indiana; the transmission is manufactured by Caterpillar in Illinois; the axles are manufactured by Caterpillar in North Carolina; the tires are manufactured by a third party supplier in South Carolina; and the driver’s cab is manufactured by a third party supplier in Illinois. When those mining trucks are assembled and sold to those mines in Alberta, they are exported from the US, and 100% of the profits from those sales are reported on its U.S. tax return. But when an order for finished replacement parts comes in to service those trucks, even though the parts are manufactured in the United States, stored at a Caterpillar US warehouse, and shipped by Caterpillar US employees to Alberta, the profits on those parts go to Switzerland. Switzerland has nothing to do with those trucks from start to finish. There is no economic basis for allocating those parts profits to Switzerland, yet that’s where they
Each performing essentially the same function working with Caterpillar foreign dealers to sell and service Caterpillar parts and machines. In 1999 part of the Swiss tax strategy Caterpillar consolidated several of those marketing companies into CSARL. Just a few years later in 2002 Caterpillar merged into CSARL another of its marketing companies called CACO which represented Caterpillar with its dealers in Latin America, the Caribbean, and Canada. In connection with the CACO merger, PWC, the same firm that designed the CSARL transaction, evaluated the intangible marketing assets being transferred from CACO to CSARL, and concluded that they had little value. In other words, when CSARL was the recipient of the marketing intangibles from CACO, Caterpillar said the value was negligible. But when valuing those same intangibles as provided by CSARL, Caterpillar claimed they were so valuable they justified transferring 85% of its …show more content…
Caterpillar builds a type of mining truck, the 797, which works in mines around the world, for instance in the Alberta tar sands in Canada. Major components are designed, manufactured, and assembled in the United States. The engine is manufactured by Caterpillar in Indiana; the transmission is manufactured by Caterpillar in Illinois; the axles are manufactured by Caterpillar in North Carolina; the tires are manufactured by a third party supplier in South Carolina; and the driver’s cab is manufactured by a third party supplier in Illinois. When those mining trucks are assembled and sold to those mines in Alberta, they are exported from the US, and 100% of the profits from those sales are reported on its U.S. tax return. But when an order for finished replacement parts comes in to service those trucks, even though the parts are manufactured in the United States, stored at a Caterpillar US warehouse, and shipped by Caterpillar US employees to Alberta, the profits on those parts go to Switzerland. Switzerland has nothing to do with those trucks from start to finish. There is no economic basis for allocating those parts profits to Switzerland, yet that’s where they