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Tuesday, July 12, 2011

Caterpillar Exec to Congress in May: "Make Our Crime Legal"

I was cruising through Reddit last night when this item caught my attention:

Bloomberg News:

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.


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Just crooked corporate business as usual, right? Actually, yes. This sort of thing happens all the time and will continue to happen until corporate CEOs start doing actual prison time.

But what's especially galling in this case is that, back in May, the president of Caterpillar was called to testify before congress on how unfair the US tax code was.

Peoria Journal Star:

A Caterpillar Inc. executive called on Congress on Thursday to enact tax reform that would "level the playing field," allowing U.S. companies to better compete with foreign firms.

Ed Rapp, Caterpillar's group president and chief financial officer, suggested that the United States reduce its corporate tax rate and do away with a "worldwide" tax in testimony before the House's Ways and Means Committee, whose members include Rep. Aaron Schock, R-Peoria.

"The U.S. tax code too often tilts the field to the advantage of our growing foreign competitors," he said.


"In China, the corporate tax is 25 percent. If Caterpillar earns $1,000 there, we pay $250 to China. If we bring that money back to the United States, we must pay another $100 to the U.S. Treasury, bringing the total tax rate to 35 percent. However, if a competitor from the United Kingdom earns $1,000 in China, it pays only the $250 Chinese tax," Rapp complained.

Here's the thing: he was basically going before congress and requesting that they make his company's crime legal. See, Caterpillar set up a phony Swiss outfit called "Caterpillar SARL" or CSARL. CSARL would work as a "global purchaser" of parts for the equipment company. The company would be wholly Swiss and not subject to US tax laws.

However, the report tells us CSARL "had no spare-parts employees and did no work to sell or ship the parts, Schlicksup claims in the lawsuit. The parts are shipped to dealers around the globe from a warehouse in Morton, Illinois, about 10 miles southeast of Caterpillar's Peoria headquarters, according to the lawsuit, which also describes the spare-parts business as the company's most profitable line." This allowed Caterpillar to avoid paying the taxes it owed to the tune of $2 billion. This should be considered theft on a massive scale.

Another point; in addition to basically begging House Republicans to make his scam legal, Rapp was making an argument that would encourage American companies to outsource jobs. And his argument was a teenager's argument -- "Chinese moms let their companies do it!"

I don't care if some countries are fine with outsourcing, we're not. Period. End of story. Now go to your room.

Rapp's underlying argument -- crime aside -- is that we should view tax code in terms of fairness, rather than effectiveness. But my view is that people who wake up to penthouse views don't get to complain about fairness. Fabulously well-to-do and complaining about how rough things are? Unacceptable.

But to make that argument while you're running a criminal enterprise? It's long past time that tax cheats and corporate frauds are dealt with through fines. It's time to get tough on crime. It's time for people to start going to prison.

-Wisco


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