The Caterpillar Case on the Swiss based spare parts business

Caterpillar, the world's largest construction equipment manufacturer, implemented a tax strategy in 1999, advised by PwC, which shifted profits from the sale of replacement parts to Switzerland, where they negotiated a low corporate tax rate. This shift allegedly occurred without significant changes in business operations. Caterpillar's restructuring involved forming CSARL in Switzerland, naming it the global purchaser of parts, executing tolling agreements, and licensing intangible rights. The IRS later assessed a $1 billion bill, leading to investigations. Caterpillar's case involved discrepancies in the allocation of profits, with the US entity holding most manufacturing and R&D activities but reporting only 15% of the total profits. Shareholder lawsuits followed the revelations, causing Caterpillar's stock value to drop. In the end, Caterpillar settled with the IRS for $740 million related to tax issues from 2007 to 2016, emphasizing the consequences of aggressive tax planning in the post-BEPS era.

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