Heavy Machinery Maker Charged with Wrongdoing

Caterpillar Inc. (NYSE: CAT)

Federal authorities raided Caterpillar’s headquarters in Illinois In March of 2017, accusing them of tax and accounting fraud.  In a rare accusation of a multi-national company of tax fraud, the report issued by the Government could result in quite significant penalties.  Federal authorities had been looking at CAT for years, with a whistleblower leak in 2009 leading to a serious investigation which culminated to the raid in March.  

The report focuses on their overseas business and tax transactions involving appropriations of billions of dollars.  US Corporations owe income tax at the 35% corporate tax rate on profits earned worldwide.  They are permitted to defer those taxes, however, until bringing those earnings back into the United States when they will be assessed US corporate income tax with a credit for taxes paid overseas.  Exceptions to the rule exist, with money reported in the form of loans at the center of this investigation.

The report accuses Caterpillar of bringing billions of dollars back from offshore affiliates without paying the proper amount of tax.  The investigation led by the Inspector General of the FDIC, which investigates possible criminal activities from financial institutions, and the United States attorney’s office for the Central District of Illinois, involves a Swiss subsidiary of Caterpillar.  The report outlines that billions of dollars in profits from CSARL in Switzerland from 2007 – 2012 should have been taxed at much higher US income tax rates.  The IRS could potentially impose up to $2 billion in taxes and penalties on profit earned by CSARL.  

Caterpillar claims that the profits were determined to have been reinvested outside the US, and they are contesting the accusations stating that they complied with all tax laws and did not violate any judicial doctrines.  

There is no ruling yet, however many professionals close to the case feel that Caterpillar’s noncompliance with US financial tax laws and reporting rules was deliberate in order to maintain a higher share price.  

Caterpillar is one of the 30 companies in the Dow, and shortly after the raid in March, shares of Caterpillar fell 2%.  In spite of the ongoing investigation, their latest earnings report in October of 2017 was up 27.5% year to date, while trading at a rich 25 times earnings estimates.  

For current information on corporations, trading or investment services you can trust, contact Great Point Capital today.  

Great Point Capital is a member of FINRA offering professional service, wealth management and execution to retail customers.  We are a leader in the equity day trading community with more than 100 prop traders currently trading the firm’s capital with stock leverage. We provide the latest in technology including Takion trading software and our proprietary intra communication platform.  Contact us today to learn how we can take your successful trading strategy to the next level.