Caterpillar is one of the companies with operations in the United States which have been accused of setting up base in tax havens (Weissmann, 2017). In early 2017, reports emerged that the firm had set up a subsidiary in Switzerland. This subsidiary served no purpose other than to allow the company to enjoy the lower taxes that the Swiss government imposes on firms. Caterpillar’s officers were raided by federal agents who sought to understand the company’s financial practices (Newquist, 2017). The raid is clear indication that the American government believes that tax havens are a threat to the American economy as they rob the government of tax dollars.
Switzerland is one of many tax havens that are used by individuals and companies to minimize the amount of taxes that they remit. In addition to Switzerland, such other territories as the Cayman Islands and Bermuda are also tax havens. The Netherlands, Barbados, Mauritius, Luxembourg and the British Virgin Islands are also tax havens (Kattasova, 2016). Apart from the lower tax rate, the other characteristic that is shared by these tax havens is the refusal to cooperate with the international community to tackle tax evasion. For instance, Switzerland has been accused of failing to do enough to address tax evasion and fraud. Deregulation and opacity are other features that characterize tax havens (Cohen & Kennedy, 2013). The authorities in tax havens fail to monitor individuals and organizations to ensure that they do not exploit tax codes. Moreover, tax havens do not have transparent systems and processes. This makes it very easy for companies to establish subsidiaries that are then used to enjoy the lower tax rates.
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Cohen, R., & Kennedy, P. (2013). Global Sociology. Third Edition. New York: New York University Press.
Kattasova, I. (2016). These are the World’s Worst Tax Havens. Retrieved 19 th March 2017 from http://money.cnn.com/2016/12/11/news/economy/corporate-tax-havens/
Newquist, C. (2017). Accounting News Roundup: Corporate Taxes and KPMG’s Next Global Chairman. Retrieved 19 th March 2017 from http://goingconcern.com/accounting-news-corporate-taxes-kpmg-global-chairman/
Weissmann, D. (2017). Raid by Federal Investigators at Caterpillar is Unusual Move. Retrieved 19 th March 2017 from https://www.marketplace.org/2017/03/08/business/caterpillar-says-it-company-highest-integrity-after-unusual-raid-federal