Caterpillar Is Facing Accusations of Tax Fraud, and Their Investors Are Terrified


Caterpillar

Caterpillar ($CAT) is one of the best-known American stocks on the market. The heavy machine and mining company has been around for overĀ 90 years and became a publicly traded company in the late ’20s. They also hold the honor of being one of 30 companies listed on the Dow Jones Industrial Average, something reserved only for the biggest and best American titans of industry.

In recent years, however, the California-based company came under fire for not being entirely honest on their taxes. While most multi-national corporations use tax havens and various tax schemes that are legally and ethically dubious, Caterpillar allegedly went the extra mile to avoid paying taxes altogether.

Now, a new report indicates the company did far more than avoiding taxes. They possibly even used tax avoidance schemes to inflate their share price…and $CAT shareholders are not happy.

Caterpillar reports their earnings out of a Swiss subsidiary.

Caterpillar
Shutterstock

In 2014, the U.S. Senate realized that by doing this, the company saved $2.4 billion over the course of 13 years. Their reasoning for doing so, however, is nothing more than avoiding taxes and not for any quasi-believable business purposes. This discovery increased scrutiny from the U.S. government and several of its branches, including the I.R.S.

A new government-commissioned report, however, claims the company isn’t being truthful about their taxes.

The report claims Caterpillar didn’t report billions of dollars in loans on their taxes when they should have. They’re also allegedly avoiding taxes on money brought stateside from Switzerland. Since Caterpillar would keep making money but paying less in taxes, their operating income and net profit would essentially be bigger than what it should be if they had paid their fair share of taxes. This would mean their share price should theoretically not be worth anywhere near what it is currently worth ($93.37 as of this writing, or up nearly 28% in the last year).

Caterpillar isn’t being charged with anything at the moment, but the allegations are scaring investors.

StockTwits
Investor sentiment via StockTwits

If Caterpillar did purposely avoid taxes and are charged with such a crime, they will incur heavy monetary penalties that could cause the company to lose its comfortable financial footing. This would essentially decrease the value of the company, which is why faith in the company is at a record low. After all, if the company loses money, shareholders lose money, and that’s the last thing anyone wants. In fact, $CAT is down 2.8% today after the report was released.


Should you invest in Caterpillar? Due to their prestigious placement on the Dow, Caterpillar’s stock is fairly popular and performed relatively well in the last couple of years. Now that the company is under investigation, however, they could end up paying billions of dollars. This would cause their stock to decrease rather sharply, much more than 2.8%.

If you want to invest in Caterpillar, you might want to wait until this investigation concludes to either see how it plays out or pick up the company’s stock at a much lower point of entry. Otherwise, you might want to look elsewhere.