Thank you. A minute before the red light comes on on the timer you will see a light changed from green to yellow, giving you an opportunity to conclude remarks. Your written testimony will be printed in the record in its entirety. Please let your oral testimony to ten minutes. And i understand that you will be presenting the statement for caterpillar. Is that correct . Yes, i well. Please proceed. Good afternoon, chairman levin, senator mccain. Thank you for the average into the job. For the subcommittee today. My name is julie legacy, and i am the vicepresident of the finance Services Division of caterpillar which includes tax and accounting function. On my left is caterpillars director of global tax and trade robin baron, a 24 year caterpillar employee. On my right is right perkins, who retired in 2009 as one of our International Tax managers after 35 years of service debt. We are proud to represent caterpillar before you today. Caterpillar is a Great American company, and our reputation as one of our our reputation is one of our british assets. I want to emphasize, caterpillar complies with u. S. Tax laws, and we played pay everything that we go. We are proud of what we do. We are proud of the men and women to make it possible, and we are equally proud of our u. S. And american heritage. Our average effective tax rate is 29 . That is one of the highest for a multinational manufacturing company. Three Percentage Points higher than the average effective rate for u. S. Corporations. This is particularly high when you consider that more than 65 percent of our sales and revenues are broad. Over the last 15 years, we have increased employment in the United States by 35 to nearly 52,000 jobs, and we have more than tripled our exports to 16 billion. Caterpillar enjoys a strong legacy and, in fact, my family has a long history with this company. Both of my grandfathers worked at caterpillar. During world war to my grandfather stepped up to work in the factory to help build the machines our servicemen rely upon. My father whose career spanned 38 years began as an apprentice and worked his way up to manage one of the factories. Along the way he met my mother who worked a dictated caterpillar. All told, three generations of my family to have more than 140 years of service at caterpillar, and i am a current steward of this tradition. At caterpillar stories like mine are not uncommon. For nearly 90 years caterpillar has helped build the world, including the backbone of modern american. What began with to american investors now employs over 118,000 people worldwide and nearly 52,000 of those people are right here in the United States. When you consider our independent dealer and supplier network, the world wide reach of our company is even greater. At our roots we are an American Company. Our equipment was there to build the Golden Gate Bridge and create the interstate highway system. Caterpillar products, dealers, and employees also show up after tragedy strikes. In Oklahoma City at Hurricane Katrina and ground zero we were joined the First Responders in cleaning up, powering up, and paving the way for recovery. We are proud that many of our products are made in america. Along the Illinois River in our east urea factory we make the machine on which our company was founded, the tractor, better known as the bulldozer. Just down the road in decatur, illinois is the only place in the world army will where we make the Worlds Largest mining truck which stands to onehalf stories tall and thin carry 400 tons. Eight out of ten large mining trucks made indicator are shipped outside of the u. S. There are other examples like this across the country from engines rolling off the line in taxes to the locomotives we are building in indiana toward the exit or the excavators made in georgia. Customers depend upon caterpillars unmatched product, services, solutions, and the reliability of our machines. We grow and build near our customers worldwide not only because it is what they demand, but because remaining globally competitive helps create jobs right here now. Growing where our business is means growing where our customers are located, not just in the United States, but throughout the world. Most importantly, while more than 65 percent of our sales and revenue come from outside the u. S. , caterpillar remains committed to our manufacturing roots here in america. That is why we continue to invest here at home with 69 manufacturing and logistics facilities and cat dealers from coast to coast. Remain globally competitive helps create jobs right here,. In the past 15 years we have increased our u. S. Employment by more than 13,000. Many of these jobs can from our exports, which last year alone totaled 16 billion. As you may remember, our effort to grow u. S. Manufacturing jobs was highlighted by president obama in his 2013 state of the union address. I want to emphasize, again, caterpillar has fully complied with u. S. Tax law. For 2013 we estimate that caterpillar incurred approximately 700 million in Income Property sales and use taxes to u. S. Federal, state, and local governments. Additionally our wages accounted for approximately one and threequarters billion in federal, state, and local employment taxes. With the last eight months caterpillar has responded to several subcommittee questionnaires another affirmation requests. Producing dozens of pages of documents on voluntarily permitted and facilitated 11 separate subcommittee staff interviews of current and former personnel and has cooperated in every way possible with the subcommittees inquiry. We understand that the chairman and its staff are interested in one aspect of our companys business, sales outside of the u. S. Caterpillars philosophy is that our Business Structure drives our tax structure. We do not invent artificial tax structures. When we identify options that align with our Business Structure comply with the tax laws and generate tax savings, we pursue those opportunities. The restructuring of caterpillar was one of those of virginities. Decades ago caterpillar had the vision to see new opportunities worldwide that would drive our Business Growth in the u. S. And globally so caterpillar established a subsidiary in geneva, switzerland that would be responsible for putting in place a Robust Network of employees, independent dealers command suppliers for. That subsidiary is now known as pissarro. By the 1990s and had thousands of people supporting the business and almost 500 employees in geneva, switzerland alone. It is a vital business subsidiary responsible for manufacturing, marketing, and selling machines dimensions command parts outside of the United States. The geneva entity has held held this responsibility since 1960. The 1999 restructuring further refined this role. One result of this restructuring was that a streamlined the process and began buying parts directly from u. S. Suppliers. Prior to the restructuring caterpillar acted as an unnecessary middleman buying these parts from independent suppliers and selling them with the then sold them to dealers outside the u. S. A prudent, lawful Business Planning required us to eliminate the unnecessary middleman from the transaction flow. We cannot remain competitive, we cannot create jobs, and we cannot increase exports by incurring unnecessary expenses. Americans pay the taxes that they go but not more. As an American Company we pay the taxes that we go, not more. In planning and implementing of implementing the restructuring caterpillar appropriately relied on advice of two of the worlds leading tax advisory firms, Price Waterhouse coopers, a leading big four u. S. And International Accounting firm and the law firm mcdermott will and emory renowned for its International Tax practice. Both firms provided the advice that the changes are appropriate under the tax loss in both stand behind that advice. This advice was consistent with the experience and judgment of caterpillar Tax Department. Caterpillar in house Tax Professionals and outside advisers manage to tax risk every day, and we remain convinced that the restructuring and subsequent transaction comply with the tax law. Csarl purchases and sales of parts of more than sufficient business of this to be respected for tax purposes. The 1999 restructuring of parts purchases and sales did not in any way violate generally applicable judicial doctrine is in the tax area. An independent expert, Professor John stein is of the New York University school of law confirms this conclusion. He had provided airport to the subcommittee staff on march 10th, 2014. Csarl pays and arms length royalty for all tangible properties including intellectual property made available by caterpillar, inc. To a csarl as well as Ongoing Services for all activities performed by caterpillar, inc. Fur csarl. So even with respect to parts that are sold to dealers located outside of the United States commits a portion of the resulting income is subject to current basic u. S. Tax. The direct purchase of its parts inventory reflects nothing more than the standard Business Operations and tax planning that any prudent business would employ in conducting its operations and complying with u. S. Tax laws. In closing, i would like to emphasize again that caterpillar is a Great American company, and Iconic Company might say, a publicly listed since 1929. We have steadily grown by working our Business Model day in and day out. Caterpillar does a significant amount of business around the world, creates jobs, invests in the communities where we do business, and there is one of the highest effective tax rates for manufacturing company. Caterpillar complies with its legal obligation with respect to payment of taxes. We are happy to answer your questions. Thank you. Ms. Legacy, my first question is of view. Were you involved in the implementation of the csarl transaction in 1999 . No, i was not. Ms. Perkins, at the time of the 1999 csarl transaction you were working for caterpillar, serving as its Tax Departments main point of contact. Is that correct . Mr. Chairman, that is correct. And mr. Robin beran, you wore mr. Perkins i believe what was your role in 1999 . I was and then the head of the Tax Department. Okay. And you work directly under the csarl transaction . I was involved with this formulation. Yes. The implementation. People did much more work and i. So you were involved in the formulation . Would you look at seven please . This is the way in which he w. C. Recommended that caterpillar could reduce its taxes. It is one page for the document. Here is what it says. Purpose, read characterize Marketing Company in come. We characterize Marketing Company in come to achieve u. S. Tax deferral. And then if you look further down as you point out it was caterpillar as you said, ms. Legacy, taken out of the chain as an unnecessary middleman. We will get to that in the minister just tell unnecessary it was. The direct purchase wind in geneva promise suppliers is that correct so far . Yes, sir. Mr. Perkins, is that correct . Estimated. Was it the caterpillar Tax Department that came up with the idea to remove caterpillar, inc. From that title chain are was that be w. C. Idea . Mr. Chairman, i can respond to that. The original idea, the genesis of that was within the Tax Department and predated the p. W. See proposed changes by at least a halfdozen years. Okay. Take a look at exit 32, if you would. This is a by the way, before we leave to 07i will repeat it again. One of the benefits and costs of this change in the title was a relatively simple reenforcing requirement. In other words, the parts never went to switzerland. Is that correct . The parts would be distributed all over the world. With did not go to switzerland. Many of them went to one of the well, they went to a the warehouses at csarl overseas. And how many of the warehouses are there in switzerland . None in switzerland. How many in the United States . I dont know the exact number it varies. Says san sound about right . In the range. In the range. Now lets get to exit 32. February 2011, deposition of sally styles under ralph. To any of you know whos selling styles is . That me ask you, is she the caterpillar tractor of global tax . Do you know . She is the director of global tax operations now. Says she is now the director of global tax. Here is what she said in her deposition. Question, exhibit 32. Is it fair to say that the driving force behind csarl was the Tax Department and not a Business Unit . Cancer is yes. Was that correct . Senator, the context is that the Tax Department has to continually adapts to the way the business is run. That is so we were doing. I understand. Was her statement direct correct . The Tax Department was the driving force . At the point in time we were aligning our tax reporting with the way that the business was wrong, yes, we have to propose that. Im not arguing with you. Im just asking whether or not the Tax Department was the driving force behind csarl, the csarl transaction . Thats all im asking. Yes. Okay now, according to information which be w. C. Has provided us from 19992003, caterpillar paid 55 million to design, develop, and implement the service tax strategy involving csarl which caterpillar called the global value enhancement or below program. Does that match what you know . I believe that is in the range. Mr. Perkins, does that match your understanding . Yes, it does. All right. From the beginning that decision to use csarl and direct caterpillars nine u. S. Profits to switzerland was to shift profits to a lowtax jurisdiction. Is that correct . Senator, as i said, it was to a line the profit recognition where the business was being run and managed. That tax purpose, shift profits for tax purposes to of lowtax jurisdiction. We had to get the profits where there werent. Im asking you it was not a shift. Was to get them to where they werent. I mean, may change the location, but the shift was to go to the or the point was to get them to where they werent. Take a look at page 4619 in the exhibit seven. [inaudible conversations] do you have that page . Yes. The head of the page can increase profits associated with marketing, u. S. Tax deferral, do you see that . Yes. And the benefits cost where it says migrates profit from cat into low tax Marketing Companies do you see that . Yes. Okay. Was that accurate . Was that a benefit . Yes, its a benefit to our earned income and the tax jurisdiction. All right. Senator, could i add im not. Let me just finish. To migrate the profits from cat into a lowcost Marketing Company. Is that what it says . Yes. And this was the plan and you put in place . Is that correct . That is be w. C. Choice of terms to my guess. Is . Pricewaterhousecoopers. It is their choice of boarding. Yes. Fair enough. That is what your company bought. Senator, could i add please. I just want, first, mr. Robin beran. We pay them for their services, yes. You but their plan, their strategy. Do you want at something . Again, keep in mind that csarl and its Predecessor Company or in business since 1960. At the time of the realignment we have approximately 500 employees and our geneva office, but perhaps more importantly thousands of employees outside of the United States doing the work to help solve parts. Short. Those employees were all caterpillar employees. Were they not . Caterpillar employees how many employees as caterpillar have . In 1999 . At the moment the you just talked. I dont know the exact number of total caterpillar how many employees did csarl have . Csarl have thousands of employees. We have 500 employees at that time in geneva, switzerland, but many other employees around the world. Csarl is not just in geneva. It is an effort that markets and as manufacturing, outside of the United States. And another 400 are so in singapore, but all of the employees around the oral the and and and now working for caterpillar or caterpillars own companies. Is that not correct . Csarl take a look get your own members, employees and total number of caterpillar employees around the world are in the we have 118,000 employees around the world today, 52,000 of those employees are in the United States. More than half of our plan is outside of the United States. Of course, but that is caterpillar offshore employees. Is that not true . No. Let me give you numbers. You and tell me where we are wrong. These numbers come at a letter from the subcommittee. Total caterpillar employees globally, one under 18,000. Caterpillar u. S. Employees to the 2000. Caterpillar offshore employees including c csarl 66,000. Now lets get down to csarl. Csarl employees global 682. Csarl employees switzerland 400. Is that wrong . That is the letter that came into the subcommittee from you. There are also employ