Shares of Caterpillar Fell after the Accusation of Accounting and Tax Fraud

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Caterpillar shares fell by 2% on Wednesday after a commissioned report by the government accused them of accounting and tax fraud.

The manufacturer of construction equipment products said that they weren’t given a copy of the commissioned report that was reported and viewed by The New York Times on Tuesday. The spokesperson for Caterpillar, Corrie Scott said that as they haven’t seen the report yet, they won’t be commenting on it.

Caterpillar’s facilities and corporate headquarters in Peoria, Illinois were raided by law enforcement officials last week for executing a search and seizure warrant. Last week, Caterpillar said that this warrant was focused on document collection and information of electronic type and that Caterpillar is cooperating with the authorities.

Caterpillar shares, one of the Dow Jones Industrial Average’s 30 components, were down by $1.73 in the trading in afternoon to about $94.19 because of this.

An accounting professor at Dartmouth College, Leslie Robinson wrote in her report that Caterpillar didn’t comply with US financial reporting rules and also didn’t comply with the US tax law. She believed that the noncompliance of the company with these laws was clearly deliberate and the intention for this was to maintain a share price, which was high. The actions weren’t negligent; they were fraudulent.

The commissioning government agency for the report wasn’t yet revealed, but Robinson wrote in her report that it was related to the investigation of the company by Inspector General’s Federal Deposit Insurance Corporation Office.

Neither Inspector General’s FDIC Office nor Robinson were available for comment.

Last week, Caterpillar also said that their officials think that this investigation focused very less on the export filings, which involved a subsidiary in Switzerland known as CSARL. In 2014 annual report by the company, it mentioned that the Securities and Exchange Commission began an investigation into the Swiss subsidiary and sought the preservation of all related records.

In the annual report of 2016, which was filed last month, Caterpillar provided update on this issue saying that the Swiss subsidiary accounted for most of the undistributed profits of all foreign subsidiaries and the company had the funds to be indefinitely reinvested outside the United States of America.

Switzerland government taxed those profits and the business levies in Switzerland were far lower than the 35% top corporate rate of the US. But IRS had proposed taxing of profits earned from machines and other transactions done by CSARL in the years from 2007 to 2012 at US rates, according to Caterpillar’s annual report. The IRS might force Caterpillar to pay $2 Billion penalties and taxes on the CSARL profits.

The company is contesting these tax increases for these years and they believe the transactions complied with the tax laws and they didn’t violate any laws.

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