Caterpillar Construction, the worlds largest producer of diesel engines and one of the largest producers of heavy equipment has allegedly committed tax fraud
after a federal investigation, on March 4th.
Federal officials found financial statements at the Peoria, Illinois headquarters
that show a total of $2 Billion in revenues transferred to foreign subsidies of the
construction mogul.
The financing strategy used by Caterpillar called for additional revenues                                                       earned by the firm to be held overseas by shadow companies. This strategy
allowed the parent company of Caterpillar to maintain high earnings and yet
limit their US corporate tax.
However, tax strategies similar to Caterpillar’s are not new to American
business. Google, Starbucks, and Apple are some familiar names who have also
enjoyed exporting profits overseas to limit the US tax hurt (fortune.com/apple
google-taxes-eu). But why? Answer, the US has the world’s third largest
corporate income tax at 38.92% (taxfoundation.org). So for multibillion dollar
corporations, like Caterpillar, that means that almost 40 cents off every dollar is
leveled before a net income is constructed. If your a world’s number one
producer, that hurts.
So should corporations be allowed to shelter revenues overseas? What ethical
implications should be addressed amidst this investigation?
The first point of view we can look at this issue from is the capitalist point of
view. A capitalist would argue that it is the responsibility of a corporation to
generate as much profits as possible for is owners (shareholders). Therefore, it
it should be legal for corporations to funnel revenues to nations with low
corporate income taxes. In a similar manor, pro business individuals may argue
that company growth is essential to employee jobs and the american worker.
Alternately stated, if Caterpillar can mine more profits, its employees can expect
job security, expansion, an increased benefits.
In a contrasting view a nationalist would argue that exporting US dollars limits
revenues for the US government, which in turn will limit US spending, which
benefits US citizens via spending on public works, education, infrastructure, etc.
A utilitarian may also support the claim made by a nationalist, however delving                                         deeper by claiming that it is only equitable that all US corporations be taxed the
same. Utilitarians would argue that it is unfair to a smaller corporations who
don’t have foreign subsidiaries to harbor excessive revenues with.
But what does the law say? Law in the US is based on the practice of common
law or the Theory of Precedence. The Theory of Precedence, is the belief that the
verdicts of current trials should follow that of past trials that closest mirror the
same elements as the current case.
A case of corporate income tax evasion, similar to Caterpillar’s, can be found in
Commissioner v. Glenshaw Glass Co. In this case the Supreme court ruled that,
“income derived from any source whatever,” the Supreme Court stated, “this
language was used by Congress to exert in this field ‘the full measure of its taxing
power.’ . . . And the Court has given a liberal construction to this broad
phraseology in recognition of the intention of Congress to tax all gains except
those specifically exempted” (www.irs.gov).
What can this precedent mean for Caterpillar? 1) “Income derived from any”
source,” requires that all income foreign or domestic made by a US corporation is
subject to taxation. 2) “The court has given a Liberal [free] construction to this
phraseology,” means that the Supreme court has left it up to congress to
determine who all gets taxed and for how much.
Having analyzed this case from different points of view, it is still incomplete to
pass a verdict on Caterpillars actions. Until then, we are forced to wonder if
Caterpillar will have enough power to move heaven and earth to suit their
blueprint regardless of government constraints.

Article By:
Nicholas Sala
Senior Editor