Monday, March 31, 2014

Caterpillar Saved Billions in US Tax By Shifting Profits to a Swiss Subsidiary



Caterpillar Inc., an American manufacturing icon, used a wholly owned Swiss affiliate to shift $8 billion in profits from the United States to Switzerland to take advantage of a special 4 to 6 percent corporate tax rate it negotiated with the Swiss government and defer or avoid paying $2.4 billion in U.S. taxes to date, a new report from Sen. Carl Levin, the chairman of the U.S. Senate Permanent Subcommittee on Investigations shows.


“Caterpillar is an American success story that produces phenomenal industrial machines, but it is also a member of the corporate profit-shifting club that has shifted billions of dollars in profits offshore to avoid paying U.S. taxes,” Levin said. “Caterpillar paid over $55 million for a Swiss tax strategy that has so far enabled it to avoid paying $2.4 billion in U.S. taxes. That tax strategy depends on the company making the case that its parts business is run out of Switzerland instead of the U.S. so it can justify sending 85 percent or more of the parts profits to Geneva. Well, I’m not buying that story.”


Caterpillar’s offshore tax strategy will be the subject of a Tuesday hearing, the latest in a series of subcommittee probes into tax avoidance by multinational corporations. Previous hearings examined offshore tax avoidance by Apple, Microsoft, and Hewlett-Packard, among others.


Starting in 1999, Caterpillar paid PricewaterhouseCoopers, acting as both its tax consultant and auditor, over $55 million to develop and implement a tax strategy built around redirecting to Switzerland taxable profits from sales of Caterpillar branded replacement parts manufactured by third parties under contract with the company.


Under the Swiss tax strategy, in exchange for a small royalty, Caterpillar transferred rights to the profits from its profitable international parts distribution business to a wholly controlled Swiss affiliate called CSARL. Caterpillar essentially redirected the profits by simply replacing its name with CSARL on its invoices. No personnel or business activities were moved from the United States to Switzerland, and most of the parts business remains in the US.


Prior to issuing the license, Caterpillar had booked 85 percent or more of its non-U.S. parts profits in the United States, where 70 percent of those parts are made and warehoused and where its global parts operation was created and is managed. The license allowed CSARL to sell the parts to Caterpillar’s non-U.S. dealers and pay Caterpillar a royalty equal to only about 15 percent of the parts profits, while keeping the remaining 85 percent on its books in Switzerland. From 2000 to 2012, Caterpillar directed so much of its parts profits to CSARL in Switzerland that it avoided paying U.S. taxes totaling $2.4 billion on parts profits of $8 billion.


“Caterpillar gave its Swiss sub $1 dollar of profits in exchange for 15 cents, a deal no reasonable business would offer,” Levin said. “It didn’t even ask to be compensated for turning over a profitable parts business that Caterpillar took decades to develop. It wasn’t a real business transaction; it was a tax deal pure and simple to shift profits between related parties.”


Caterpillar sent the vast majority of its profits to Switzerland even though only about 65 of the 8,300 Caterpillar employees who handle parts work in Switzerland. That contrasts with the nearly 5,000 U.S. employees who handle parts. None of the manufacturing, warehousing, or distribution activities – the heart of the parts business – exists in Switzerland. Because it lacks the personnel, infrastructure, and expertise to run the company’s parts business, CSARL pays Caterpillar to keep doing the work, reimbursing it for its costs plus a small service fee.


Caterpillar told the subcommittee that sending the lion’s share of the parts profits to Switzerland is justified because its Swiss affiliate performs valuable intangible services. But the report points out that a company executive, under oath, acknowledged that there was no business advantage to the Swiss arrangement other than tax avoidance. The report also shows how Caterpillar, when evaluating the same type of intangible services at another time, found their value to be negligible.


“When Caterpillar and its tax advisers launched this tax avoidance scheme, almost nothing changed in the real world,” Levin said. “The manufacturing workers who make world-class parts, the managers who operate its parts operations, the warehouses where they are stored – none of that changed. But in the fantasy land that is international tax law, tax lawyers waved a magic wand to make millions of dollars in U.S. taxes disappear.”


This type of profit shifting costs the government between $30 billion and $90 billion a year, according to academic estimates cited in a 2013 Congressional Research Service report. The tax practice has become a focus for the Organization for Economic Cooperation and Development and the Group of 20 nations, who are trying to develop coordinated rules that could be adopted by multiple governments.


The largest U.S. companies have accumulated $1.95 trillion in profits outside the country that haven’t been taxed by the U.S., according to data compiled by Bloomberg News.


Caterpillar has $17 billion, up from $11 billion three years earlier,
according to company securities filings.


Levin’s investigation began focusing on Caterpillar following a lawsuit filed by former employee Daniel Schlicksup, who alleged that company executives retaliated against him when he raised concerns about the international tax strategies.


The report makes the point that offshore profit-shifting by U.S. corporations goes beyond the intellectual property maneuvers of technology companies such as Apple Inc. and Microsoft Corp. that have been the subjects of past hearings by Levin.


Tuesday’s hearing is at 9:30 a.m. in Room 106 of the Dirksen Senate Office Building. It will include testimony from independent tax experts and executives from Caterpillar & PricewaterhouseCoopers.
Full details are available on the subcommittee’s website, where the hearing will be streamed live.

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Sources:


Senate


Bloomberg

IRS Released Revised Form W-8BEN-E For Entities.



On Friday, March 14, 2014, we posted "IRS Revised FormW-8BEN For Individuals - What Form Do You Use For Entities?" Where we discussed that the Internal Revenue Service (IRS) had released revised IRS Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Individuals)).


The IRS Instructions for Form W-8BEN provided that Form W-8BEN IRS Form W-8BEN is now used exclusively by individuals and Entities should use IRS Form W-8BEN-E which was still in draft form.



We advised that taxpayers should use the old W-8BEN for entities, until the new one (coming out soon) for entities, W'8BEN-E comes out. Well the new Form W-8BEN-E has now been released.


The IRS released on March 29 the final version of the 2014 Form W-8BEN-E, a form required under the Foreign Account Tax Compliance Act.

Form Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) is available at http://www.irs.gov/pub/irs-pdf/fw8bene.pdf.

Have an IRS Problem?


Contact the Tax Lawyers at 
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 for a FREE Tax Consultation at:   
Toll Free at 888-8TaxAid ( 888 882-9243)








Monday, March 17, 2014

Are You A Credit Suisse Client? You May Want to Make Your Voluntary Disclosure NOW!



We previously posted on Monday, March 10, 2014, U.S.Client of Credit Suisse? Last Chance To File A Voluntary Disclosure! where we discussed that Thousands of Credit Suisse Group AG’s U.S. clients still don’t know whether tax authorities will learn their identities as prosecutors work to conclude a three year probe of how the bank helped them evade taxes.

The Swiss disclosure program will lead to 106 banks’ producing information short of client names. We posted on January 28, 2014, Offshore Swiss Bank Account? This May Be Your Last Chance To File A Voluntary Disclosure! where we discussed that the United States Justice Department has received 106 requests from Swiss entities to participate in a US settlement program.

That post also discussed that Credit Suisse, Switzerland's second largest bank, is close to reaching its own settlement with the US DOJ. Credit Suisse is one of the 13 banks excluded from the US DOJ amnesty because it was already being investigated when he program was announced, but it is still free to negotiate its own non-prosecution deal.

Credit Suisse will have to disclose a great deal of information about its American clients, even including some of their names. 


Now the US Government made the announced on Wednesday, March 12, 2014, that a former Credit Suisse Banker, Andreas Bachmann, pleaded guilty to conspiring to defraud the Internal Revenue Service (IRS) in connection with his work as a banking and investment adviser for U.S. customers.

Mr. Bachmann is 56 years old and a Swiss citizen. He and 6 other Credit Suisse bankers were indicted in 2011 on a charge that they helped U.S. clients hide $4 billion in assets from the IRS. 

This “plea is just the latest step in our wide-ranging investigations into Swiss banking activities and demonstrates the Department of Justice's commitment to global enforcement against those that facilitate offshore tax evasion,” said Deputy Attorney General Cole.  “We fully expect additional developments over the course of the coming months.”

Bachmann was charged in a one-count superseding indictment on July 21, 2011, and faces a maximum penalty of five years in prison when he is sentenced on Aug. 8, 2014.

You have to wonder how many US Clients and other Swiss Bankers & Advisers he blew the whistle on, in order to come up with such a lenient charge?

In a statement of facts filed with the plea agreement, Bachmann admitted that between 1994 and 2006, while working as a relationship manager in Switzerland for a subsidiary of an international bank, he engaged in a wide-ranging conspiracy to aid and assist U.S. customers in evading their income taxes by concealing assets and income in secret Swiss bank accounts.

As part of that conspiracy, Bachmann traveled to the United States twice each year to provide banking services and investment advice to his U.S. customers.  As a matter of practice, prior to traveling to the United States, Bachmann notified his executive management, including the head of the subsidiary’s private bank in Zurich and the chief executive officer of the subsidiary, of the planned trip and its objectives.

Although Bachmann had been informed of limitations under U.S. law on his ability to provide investment advice to U.S. account holders regarding U.S. securities, the highest ranking executive at the subsidiary was aware that Bachmann was violating U.S. law.  According to the statement of facts, Bachmann was effectively told by the chief executive officer for the subsidiary, “Mr. Bachmann, you know what we expect of you, don’t get caught.”

According to the statement of facts, Bachmann also engaged in cash transactions while traveling in the United States.  In the course of arranging meetings with U.S. customers, some clients would request that Bachmann either provide them with cash as withdrawals from their undeclared accounts or take cash from them as a deposit to their undeclared accounts.  As part of that process, Bachmann agreed to receive cash from U.S. customers and used that cash to pay withdrawals to other U.S. clients.  In one instance, Bachmann received $50,000 in cash from one U.S. customer in New York City and intended to deliver the money to another U.S. client in Southern Florida.  Airport officials in New York discovered the cash but let Bachmann keep the money after questioning him.  The client in Florida refused to take the money after the client learned about the questioning by New York airport officials, and Bachmann returned to Switzerland with the $50,000 in cash in his checked baggage.  Bachmann advised the executive management of the subsidiary about the incident with the cash.

Bachmann also understood that a number of his U.S. customers concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities, or structures, which were frequently created in the form of foreign partnerships, trusts, corporations or foundations.

Bachmann dealt with Josef Dӧrig, a co-defendant, regarding the formation and/or maintenance of structures for U.S. customers, among others.  In approximately 1997, the international bank instructed Dӧrig to form his own company specializing in the formation and management of nominee tax haven entities because it was “too risky” to have Dörig perform that work from inside the international bank.  The international bank then directed the subsidiary and others to use Dӧrig and his Swiss trust company, Dӧrig Partner AG, as the preferred choice for the formation and management of structures.

US taxpayers who have undeclared accounts in Credit Suisse or other Swiss banks, may now want to consider applying for the US Offshore Voluntary Disclosure Program (OVDP), which sets a limit to the penalties imposed on them by the Internal Revenue Service (IRS) for failing to declare foreign assets and earnings.
 
Once either:
  • The Swiss Banks disclose an account holder's name to the IRS under the non prosecution agreement or 
  • Mr. Andreas Bachmann discloses an account holder's name to the IRS or
  • Any 1 of the 6 other Credit Suisse Bankers, who were indicted in 2011 along with Mr. Bachmannn, discloses an account holder's name to the IRS 
the OVDP election is no longer available to that account holder!!!
 
Taxpayers Who Wish To Take Advantage 
Of The OVDP Must Act Quickly! 



Have Un-Reported Income From a Swiss Bank?

Value Your Freedom?


Contact the Tax Lawyers at
Marini & Associates, P.A.
  
for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).





Source:


DOJ


Bloomberg 

Friday, March 14, 2014

IRS Revised W-8BEN For Individuals - What Form Do You Use For Entities?


The Internal Revenue Service (IRS) has released revised IRS Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (Individuals)). The IRS has also released revised IRS Instructions for Form W-8BEN .
Generally, certain foreign persons are required to provide IRS Form W-8BEN to their withholding agents or payors with regard to certain income payments, including fixed or determinable annual or periodical income (FDAP income) from US sources, in order to:

  • establish that such persons are not US persons;
  • claim that they are the beneficial owners of the payments; and
  • claim income tax treaty benefits, if applicable, for the purpose of chapter 3 of the US Internal Revenue Code (IRC).
  • The revised IRS Form W-8BEN modifies, Line 8 to request the date of birth for a beneficial owner who holds a financial account with a US office of a financial institution.
IRS Form W-8BEN has been updated to reflect the documentation requirements of IRC chapter 4, i.e. the Foreign Account Tax Compliance Act (FATCA).

  • IRS Form W-8BEN is now used exclusively by individuals.
  • Entities should use IRS Form W-8BEN-E, however,
  • the new W-8BEN-E is still in draft form.

We believe that you use the old W-8BEN for entities, until the new one (coming out soon) for entities, W'8BEN-E comes out.



Have an IRS Problem?



Contact the Tax Lawyers at 
Marini & Associates, P.A.
 
 
for a FREE Tax Consultation at:   
 www.TaxAid.us or www.TaxLaw.ms or
Toll Free at 888-8TaxAid ( 888 882-9243888 882-9243 )

Monday, March 10, 2014

Weil Ex-UBS Chief Pleads Not Guilty to US Tax Charges -- Are You Kidding Me?



We previously posted on December 16, 2013, The 2nd Ex-UBS Banker is About to Blow The Whistle on His US Clients! where we discussed that the former head of UBS's wealth management division, Raoul Weil, has agreed to be extradited to the US to face charges and U.S. Magistrate Judge Patrick Hunt agreed to let Weil stay with friends in New Jersey after putting up the bond, which included $9 million in a personal surety by Weil, $500,000 from the New Jersey family and the other $1 million a corporate surety bond signed with a bail bondsman.
US authorities issued an international arrest warrant for Weil in early 2009, just months after he was charged with allegedly conspiring to help 17,000 American clients of Swiss bank UBS avoid taxes.


We also discussed that another UBS Banker, Bradley Birkenfeld (See our post:IRS awash in whistleblowers after $104M payout!) who became a whistle blower and was awarded a $104 million reward from the U.S. Internal Revenue Service and this may happen all over again, now that Raoul Weil is facing trial in the U.S.



Well it now appears fairly obvious that he has Cut A Deal with the IRS, since a Florida judge granted him $10.5 million bail on December 16, 2013. He did not enter a plea and his arraignment was postponed until January 7.


Weil's appearance in federal court in Fort Lauderdale on Tuesday January 7, was his second since he was extradited from Italy last month. He was granted a $10.5 million bond, pending his arraignment at his first court hearing on December 16.

Lawyers for UBS whistleblower Bradley Birkenfeld, the bank employee who revealed the tax fraud conspiracy to U.S. authorities in 2007, fear that Weil may be negotiating a "sweetheart deal" that would spare him a trial and cause him to reveal secret account holders and other bankers to avoid prosecution.

Birkenfeld worked directly under Weil when he headed UBS's former cross-border banking business, have been highly critical of what they often describe as the U.S. government's failure to prosecute UBS and some of its former top executives.



Birkenfeld, who knew the inner workings of UBS and spilled many secrets about his former employer's dealings with U.S. clients, won a record-setting $104 million reward from the U.S. Internal Revenue Service for exposing the UBS tax fraud conspiracy. On October 5, 2012, we posted IRS awash in whistleblowers after $104M payout! where we discussed that Bradley Birkenfeld's $104 million reward from the U.S. Internal Revenue Service set a record and has helped set off a rush of would-be imitators hoping to cash in on a government program to catch tax cheats.

Weil knows where all the skeletons are buried and has probably already made a deal to divulge who what he knows about his U.S. clients.

If convicted, Raoul Weil faces up to five years in prison for conspiracy to commit tax fraud. The judge ordered Weil be placed on a GPS monitoring system and surrender his passport.



Was This Guy Your Banker?


Are You One of the 17,000 American Clients?


 Contact the Tax Lawyers at  
Marini & Associates, P.A.







for a FREE Tax Consultation at:

Toll Free at 888-8TaxAid (888 882-9243)
 
Source






U.S. Client of Credit Suisse? Last Chance To File A Voluntary Disclosure!


Thousands of Credit Suisse Group AG’s U.S. clients still don’t know whether tax authorities will learn their identities as prosecutors work to conclude a three year probe of how the bank helped them evade taxes.





We posted on February 25, 2014, Report to Congress: Credit Suisse Help US Taxpayers Hide Billions in Offshore Accounts! where we discussed the  Permanent Subcommittee on Investigations (PSI) of the United States Senate held a hearing, “Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts,” on Wednesday, February 26, 2014.


The PSI hearing's stated purpose of continuing the PSI’s examination of tax haven bank facilitation of U.S. tax evasion, focusing on the status of efforts to hold Swiss banks and their U.S. clients accountable for unpaid taxes on billions of dollars in hidden assets. Witnesses include representatives from Credit Suisse and the U.S. Department of Justice.


The report alleged that Credit Suisse Group AG helped thousands of U.S. taxpayers hide billions in assets offshore. The report shows that Credit Suisse opened Swiss accounts for more than 22,000 U.S. customers that, at their peak, totaled between $10 billion and $22 billion. The “vast majority” of these accounts were hidden from the U.S. and despite years of investigations by the Justice Department, the bank has turned over just 238 names to U.S. authorities.

The report criticizes the Justice Department for not concluding its probe of Credit Suisse, which has been underway since at least 2011, the people said. Levin’s subcommittee says prosecutors have withdrawn subpoenas and become bogged down in a treaty process between the U.S. and Switzerland over the transfer of data about American client accounts, according to one of the people.

“The department’s criminal investigations of offshore tax evasion are robust and ongoing,” Emily Pierce, a Justice Department spokeswoman, said in an e-mailed statement. “Together with the IRS, we are using a variety of tools to pursue taxpayers who have maintained secret accounts and the banks and banking professionals that facilitated their conduct.”

The pressure of a subcommittee report and hearings will force prosecutors to act more aggressively as they negotiate a settlement with Credit Suisse to end the probe and get more names, said Jeffrey Neiman, a former federal prosecutor.

Senator Levin urged Cole to draw lessons from the case five years ago against UBS. The U.S. asked a court in 2008 for authority to serve a John Doe summons seeking the identities of UBS account holders.  A day after the deferred- prosecution agreement, the IRS filed a lawsuit to enforce the summons while also seeking the names of 52,000 UBS clients. Within days, the U.S. and Swiss governments and UBS began settlement talks. The US judge's order spurred those negotiations, said Stuart Gibson, then the Justice Department attorney litigating the case. After Secretary of State Hillary Clinton stepped in, UBS and the Swiss agreed to hand over data on 4,450 accounts.

The Swiss disclosure program will lead to 106 banks’ producing information short of client names. We posted on January 28, 2014, Offshore Swiss Bank Account? This May Be Your Last Chance To File A Voluntary Disclosure! where we discussed that the United States Justice Department has received 106 requests from Swiss entities to participate in a settlement program aimed at ending a long-running probe of tax-dodging by Americans using Swiss bank accounts according to a senior US official. That post also discussed that Credit Suisse, Switzerland's second largest bank, is close to reaching its own settlement with the US DOJ. Credit Suisse is one of the 13 banks excluded from the US DOJ amnesty because it was already being investigated when he program was announced, but it is still free to negotiate its own non-prosecution deal.

Credit Suisse will have to disclose a great deal of information about its American clients, even including some of their names. 

Now the Swiss Parliament has approved a legal amendment that tax evaders will not always have to be told if Switzerland sends information about them to other countries. The move further loosens Swiss banking secrecy laws in order to avoid a global backlash.
Thus US taxpayers who have used a Swiss bank accounts may now want to consider applying for the US Offshore Voluntary Disclosure Program (OVDP), which sets a limit to the penalties imposed on them by the Internal Revenue Service (IRS) for failing to declare foreign assets and earnings.

However, once the Swiss banks disclosed an account holder's name to the IRS, OVDP election is no longer available to that account holder. 



Taxpayers Who Wish To Take Advantage

Of The OVDP Must Act Quickly! 

The new agreement makes clear that “personal data provided by the Swiss banks… will be used and disclosed only for purposes of law enforcement (which may include regulatory action) in the United States or as otherwise permitted by US law.”




Have Un-Reported Income From a Swiss Bank?

Value Your Freedom?

Contact the Tax Lawyers at
Marini & Associates, P.A.
  
for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).





Sources:

Bloomberg