deception is what happened at g.m. these ignition switches were known to be defective as recallly as 2001, year after year there were reliable and material facts that indicated to g.m. you had to responsibility to fix these vehicles and yet you took no action to repair them, to recall them, to inform consumers. and the fix was not a major, costly one. $2 per vehicle, easily done. and yet in 2005-2006, g.m. made a business decision that the price was too hierks th high, ts too long, and it continued to provide those vehicles for sale

to consumers. and then it deceived the united states government. i've already spoken on the floor about section 612 of the agreement that g.m. signed that indicated there were no material adverse facts at the time that it was bailed out, 2009, as part of a reorganization. that deception is bad enough. but what happened as a result of that reorganization was a shield from liability, a form of immunity against legal accountability that was granted only because g.m. failed to disclose to the united states and to the bankruptcy court that at that might well be liable and in fact was responsible for these defective vehicles. that shield from liability still bedevils the victims of injuries, death, and economic damage as they seek to hold g.m.

accountable, because g.m. itself is invoking that shield in courts today aren' around the cy and seeking to dismiss actions brought against it, seeking to return them to the bankruptcy court where the black hole of discharge will prevent recovery. i welcome the independent investigation that g.m. has undertaken by a very credible and respected former united states attorney. i welcome the appointment of a consultant, ken feinberg, also well-respected, with experience and expertise in providing compensation. but g.m. itself has said still there is no compensation fund, and it will not commit to one. and as able as these two individuals are, the question

remains: what will it take? what fact or evidence will be required to persuade g.m. to do the right thing? i think there's more than ample evidence -- in fact, abundant evidence now -- as to what the path should be, and i urged it yesterday on mary barra. g.m. should very simply do the right thing now, establish a compensation fund sufficient to seek to make these victims whole. nothing will erase or even ease the pain and grief suffered by these families and loved ones. but justice has its own virtue, and g.m. has the rare opportunity in american corporate life to do justice and not wait for its consultant and

its investigator to -- quote -- "work through" -- end quote -- the issues here. working through the issues here means doing right by those victims. yesterday i asked ms. barra about the safety of the vehicles that are still on the road and she assured me that they were fine to drive, as long as the key was not overloaded, as long as the ignition switch was used alone without additional keys. she assured me that there was no more risk to drive one of those vehicles than any other in use today. i asked her about the contradiction of that statement with the recall notice itself, and i'm going to display it he here, which says that these

vehicles are risky to drive, in effect, if your key ring is carrying added weight or -- and i emphasize that it is an "or" -- there are rough road conditions or jarring or impact-related events. jarring or impact-related events or rough road conditions. unfortunately, too many of our highways and our bypass have rough road conditions or provide the opportunity for jarring events. ms. barra may believe that the tests and analysis done by her company -- she referred to them yesterday -- assure her and g.m.

that driving these defective vehicles is safe as long as they are done with only the ignition key, without the added weight of additional keys. but she must know, because she has children, as do i and most members of this body, that they will drive with additional keys on that ignition switch. in fact, thousands -- hundreds of thousands, millions of americans have no idea that driving these vehicles with added keys provides that kind of potentially fatal risk. when these cars lose power, they lose steering, they lose their brakes, and they lose their airbags. losing power, brakes, steering is terrifying. but airbags are essential if

power is lost and the car crashes, as victims of these crashes have discovered to their sorrow and the grief of their families. this kind of pothole, a rough road condition, a potentially jarring event -- how common are they? well, this photograph is from surf avenue in straitford, a beautiful coast along the coast of connecticut, and i could take hundreds of these photographs from connecticut, which has better roads than many other places in our state or country. they are as common as the roads themselves. those risks are g.m.'s responsibility to warn. it has failed to do so.

i asked ms. barra what evidence or facts would persuade her to issue a stronger warning. the recall notice itself says that risk increases if your key ring is carrying added weight, such as more keys, or the key fob itself -- the key fob itself adds additional weight, or your vehicle experiences rough road conditions or other jarring or impact-related events. what would persuade her to issue the warning to consumers, stop driving these cars until they are repaired? and, specifically, i asked her whether evidence about drivers who have, in fact, experienced a power loss, without adding

additional weight to their key ring, if they encountered these kinds of conditions and their cars shut down would persuade her to change her view. and she answered to me, quote, "senator, if i had any data, any incidences where just the key or the key in the ring there was any risk, i would ground these vehicles across the country." ms. barra, let me tell you about laura valley. in march of 2014, ms. valley, who owns a 2007 silver chevrolet cobalt received g.m.'s recall letter instructed her to remove all items from her key ring, leaving only the vehicle key. as the recall notice instructed, she continued to drive her

vehicle, using only the vehicle key. and yet, while driving with a friend, she lost power. fortunately, she was on the side of the road, on the right side of the road, and she was able to pull the vehicle to a stop. there will be other instances. i know that they will come forward to me and to my colleagues and to lawyers who may represent them. today i call on g.m. to issue that warning. there's more than ample evidence -- or as ms. barra "data," "incidences" -- where the key or just the key in the ring led to the vehicle stopping, not

because there was added weight but because they encountered rough road conditions or jarring events which could consistent of simply leaning the wrong way, moving the driver's knee. these vehicles create risks that are unacceptable before the thee repaired, and the advice g.m. should give to people is, bring these cars to be repaired immediately. stop driving them. in the meantime, use the loan theirs g.m. has offered -- the loaners that g.m. has offered. g.m. has the opportunity to avoid another business decision. it may be more costly to provide loaners, but in the long run they will save lives and dollars. finally, i ask g.m. to do the right thing again by supporting the legislation that senator markey and i have introduced.

this legislation is critically important to the future. it can't correct the past. but it can make sure that accidents are reported, that defects are made known to the national highway transportation safety administration, and that there are not only incentives for reporting but there is increased accountability for failing to do so. and to require nhtsa to establish a publicly accessible, searchable database that will allow drivers and consumer safety advocates to connect the dots and companies that are unwilling to connect those dots will be brought to justice, will be required to recall these vehicles, and to find out about defective models in time to save lives.

miss barra has not yet committed to supporting this bill. it's he responsibility, in my view -- it's her responsibility, in my view, to do so. it's the responsibility of g.m. to take this action now. she and g.m. have the opportunity to change corporate culture, not only in that company but in others, by setting a model, leading by example. not by their words at a senate hearing or in letters after polling, but by action. action speaks louder than words. action speaks louder than the appointment of a consultant or investigator whose report may not be made fully public. miss barra was unwilling to make that commitment yesterday. it's a corporate culture that refused to make a 57-cent change car ignitions, or a $2 change,

even though that change would have saved lives. and now? the time -- and now is the time to hold g.m. accountable, for g.m. to issue that warning that will help save others from the fate known only too well to those families who came to be with us yesterday. i look forward to working with miss barra, with g.m., with my colleagues, with all who are interested in improving car safety and to using this sad, tragic, unfortunate experience as a turning point and a teaching moment, a rare moment of bipartisan action to make our roads safer. thank you, madam president. i yield the floor. i suggest the absence of a

suggest the absence of a >> trying to figure out the annual parts benefit from this structure and. this strategy that was put in place. you have exhibit 33? >> said do. that is a district court document. >> did i see 43?

sorry. >> a p.w. see document. >> it is entitled if you look at number 3, it has got a mark of 2449, january of 2010, slide 19, no. 3, worldwide parts management. do you seize that? take a look at the bottom line. the worldwide parts management structure provides further substance to preserve annual parts benefit of $300 million. do you see that? that is a tax benefit that is a result of this tax strategy. is that correct?

>> that is accurate. you see anywhere on this document what yes they are the consequences? >> it is not in this document? >> was in any document at the time they have to move people? >> it certainly would have been. >> how many people would they have to have moved? if it was less than 100 people working in parts. >> if i can ask what part of the reorganization --

>> in switzerland as it relates to the overall business. >> less than a hundred before or after. >> our view that and our view now and our view at the time to put this together was a substance that exists with parts of it that exists through marketing organizations, those individuals, thousands of individuals, and managed out of the organization based in switzerland comprised as the marketing company by the united states for caterpillar products and product replacement parts associated with those which creates the demand for those products. they have nurtured the dealer relationships, they have created the field population upon which the demand is created for replacement parts activity as well as reflect the integrated nature taking place in the business selling parts as well as machines. going back to my opening statement where this is an

integrated activity. >> did anybody have to move in order to support the parts planning? >> no. >> as a result of this proposal did anybody have to move? >> yes. >> how many had to move? >> a dozen. >> out of thousands. >> senator, that is because -- >> if you could answer the question. a dozen of thousands? is that correct? you just talked about thousands. i am asking a direct question. >> to support the additional structure of the substance that was already in place. >> that structure which was already in place which then led to this shift, 15% of the profits going to switzerland 85% of the profits going to switzerland. you want to use 70% instead of 89%? won't argue with the percentages. >> i argue with what creates the incoming shift as you call it

and that connolly result as a result of the measurement of what has been taking place with respect to functions were those exist, the risks where those have been accepted and the property where exists in the company and our evaluation of that within the context of this planning was we looked at substance and we looked at economic substance that we use, rules provided to us in case law and internal revenue code and the underlying regulations that say in order to evaluate that appropriateness of an income shift first we have to look at functions, from and what property exists and align the income with that. we never shifts that income. >> the allocation of profits was shifted. is that correct? following that existence -- >> exchanged as a result.

>> shifted from approximately 15%. >> based on your assessment. >> the parts of this -- we did -- >> after your assessment the allocation of profits shifted. and and you looked at that operation and in your judgment would have already existed, justified the shift of profits from 15% to 85% to switzerland. >> absolutely does. >> senator johnson. >> want to make a quick point and ask one question. you said you stipulated caterpillar is one terrific american company and that is not what this hearing is about. i say that is exactly what this hearing is about. sandra portland mentioned concern about the tax code is we

actually want to maintain caterpillar as an american company and far too many american businesses accusing not to remain american companies and too few global manufacturers are willing to relocate here in america to create those jobs. let's face it. when you have canada with the top marginal tax rate of 15% and detroit at 35% of your a german manufacturer, why not take advantage of the world's largest market, relatively reasonably priced energy prices are you going to locate your manufacturing facility for north america in toronto at 15% or 35? this hearing is all about what we need to do in america to make america an attractive place for global business investment, business expansion, job creation. disagree in terms of the purpose of this hearing. i think the purpose of this hearing is exactly that. let's keep american companies

american and incentivize investment for global companies into america. we are not doing a very good job of that. i hear the term all the time like fingernails on a chalkboard talking about tax loopholes. is there such a term in the tax code as a tax loophole? it is a political term, is that correct? >> correct. >> the fines and tax loopholes for me. what we're talking about when politicians use the term tax loophole? >> generally they are either incentives which were deliberately placed in the tax code -- >> just give us a couple good examples of where it made some sense to create an incentive in the tax code to incentivize manufacturers, give us a couple examples that might actually work. >> we talked about some earlier in the course of the hearing. one was the old rules which existed around foreign sales corporations. that was characterized as well many times and appropriately as

a loophole. was created for corporations that export products. more recently we talked about the homeland repatriation act where companies had an opportunity to bring earnings back into the u.s. and a 5% tax rate, this was back in the early 2,000s and was viewed as a loophole. >> was a also safe to say a lot of times people typify timing differences as a loophole? in other words it is true that corporations account for things differently. there is book accounting, tax accounting. a lot of it has to do with timing differences. for example if you got a piece of machinery and you know where out in five years, according to gap account you appreciate over five years, but accounting made to incentivize investments in equipment you might get ten year appreciation scheduled? >> correct. >> what about oil drilling?

pretty risky venture. i and hearing these subsidies for big oil. can you speak a little bit about what those subsidies really are, are those loopholes or incentives written into the tax code to get people the incentive to risk their capital to drill oil? >> as someone who reviews the tax code regularly and understand the legislative process around it i know those are incentives and many of those are put in deliberately. >> can you talk to these timing issues specifically? how oil companies have to account for their risk capital when they are investing? it is a little off the subject but exactly on point because how do you comply with the tax code that is written by congress, that tried to incentivize behavior and i would like to scrap the current tax code, i would like to raise revenue we need and stop economically and

socially engineering through the tax code but that is the system we have right now and companies take advantage of and respond to those incentives. >> that is correct. in terms of an example you are looking for it would also apply not just oil companies but particular fact and in this case study the u.s. system with respect to foreign earnings works that way as well when we think about deferral opportunity that exists for foreign earnings. that is a timing issue and that timing issue can affect either through paying the dividend back to the u.s. company at which time that income then becomes immediately taxable work it can happen as a result of the application of certain classes of income and says despite the fact you didn't return the cash to the u.s. the income is going to be immediately taxable. that is an example of a deferral strategy and one where there is very deliberate action taken by congress and the treasury department in putting in place

regulations in that area to respond to nona business issues. >> when i took tax law in college one of the tenets of tax law really was the ability to pay. most americans assume that when a corporation or business spends money they get to deduct it. that is not the case. >> that is correct absolutely. >> in so many cases businesses invest money, pay out cash, may have to borrow it by spending the money and they are forced to capitalize and amortize and appreciate that over a long period of time. >> sometimes it is not amortized, sometimes it is held on the balance sheet, the tax balance sheet, forever. >> say you have $100 and you invest $100 in capital equipment -- let's say $1 million. if you make a profit that year, where is the money going to come from to pay the tax?

>> you will borrow it. >> you have to borrow it, correct? that is not real incentivizing from the standpoint of having people risk their capital. i think is extremely important for people to understand how our tax code operates, the incentives congress has written into the law, the disincentive nature of higher tax rates, forcing businesses to capitalize cash that is spent, not be able to recover that years, that is not a loophole, that is economically very disincentive buys in and very harmful in terms of job creation. >> thank you. >> thank you, senator johnson, senator portman. >> thanks very much. i had a couple questions to follow up on how the code work specifically as it relates to caterpillar. you talked earlier about the fact the u.s. companies are competing globally added disadvantage given the we have a relatively high rate and because

we are taxing on a worldwide basis rather than a territorial basis meaning if you have act of income earned abroad it is taxed at a u.s. rate. what does that do to a company, caterpillar is an example but many u.s. companies that wants to take advantage of the international marketplace and wants to be competitive in terms of acquisitions as they come up? 80% of the purchasing power in this world is outside the united states, 95% of consumers outside united states, we want our companies to access those consumers to create more jobs here. >> that is correct. >> caterpillar in particular, do you have any idea? 51,877 u.s.-based employees are dependent on some extent on their international sales and revenues about 67% overseas. how many people who work here, 50,000 people have their jobs because caterpillar does business overseas. >> i don't know the exact number

but i expect it is a large portion of those support the export nature of the business. >> as of 2000 you had testimony your colleagues gave 14 years ago saying you estimated exports supported 16,000 u.s. caterpillar jobs here, 30,000 u.s. supplier jobs here. i wouldn't find that unreasonable so that number will be a lot bigger now that they have more employees internationally. >> correct. >> we're talking about u.s. jobs being supported by giving u.s. companies access to foreign markets, something we want to encourage, not discouraged because it creates more jobs here in america. if there is an acquisition that comes up, let's say there is a company that becomes available and the competitors would say, a german company, a french company, brazilian company, chinese company, korean company and caterpillar is in the mix,

what is the relative invented or disadvantage based on tax laws for those acquisitions? >> what they will be looking at whenever an acquisition is made is the earnings opportunity in the future. that earnings opportunity will be viewed on an after-tax basis so they will take a look at the tax costs associated with the earnings in that business as well. i am sure the exam you gave earlier, the company with in your state took a similar approach, hard economics of looking what is the after-tax cost of operating as a u.s.-based m m c or a foreign based multinational company and -- >> what i'm hearing from companies in ohio and the same is true in michigan and wisconsin is there not just at a competitive disadvantage globally but in terms of acquisitions other countries, companies can pay a premium because of after-tax profits they are looking at. yar having to not just compete head to head but shrinking as american companies relative to what we should be because of the tax cut because other companies

can come in and say i will pay you a premium so that we are not expanding as we should be and not taking advantage of these opportunities to create jobs in america. who are caterpillar's biggest foreign competitors? >> evan jenne is based company -- steve -- would you have any others? >> volvo, a swedish company, many chinese companies are competitors. and corey as well. and others. >> and by far, chinese companies are growing their market share. in sweden the top rate is 22% so 17 points lower than combined u.s. corporate of 39.1 which was state and federal. based on public financial statements from both companies caterpillar's effective rate was 28.5% last year. the know what volvo's effective tax rate was?

>> certainly lower than that. >> you have a guess? >> low 20s. >> 20%. 28.5% for caterpillar, mobile the biggest capital 20%. it sounds to me like caterpillar spent lots of money coming up with a tax strategy last year that didn't even allowed to come close to achieving tax parity with its primary rival in europe. is that accurate? >> that is -- >> you should feel guilty about it. that is accurate. that is the reality. eyewall says there is a big issue as to the ability to deploy resources to its most efficient use so it is not just the fact that the volvos of the world have lower rate but effective because they work at a territorial basis rather than a global basis. they can move capital to where they need it which is a huge advantage. the japanese have a 90% exemption rate meaning they

allow their companies to do business in the united states and bring the profits back to deploy them in japan or elsewhere without any tax penalty and so low, i know this is about caterpillar today and the chairman is raising specific points about our current code but this all cries out for reform and if we don't we will continue to see an e. erosion of u.s. jobs, u.s. capital going overseas, lack of investment in this country and the inability for u.s. companies to expand as they should be able to for the reasons we stated earlier that they're not as competitive on these acquisitions so i appreciate you all being here today and i hope again in the next few years you will be in a position to tell your clients that the u.s. has competitive tax structure and you ought to stay right here and build your jobs and build your investment in the united states of america, thank you, mr. chairman. >> senator portman, i agree with senator portman about the need for tax could be totally

reformed, now let's talk about the tax strategy which caterpillar used to save $300 million a year. that is ongoing. what caterpillar offered this deal to anybody but related company? >> would they have offered this license to anybody but a related company? >> that wasn't what we were asked to opine on. >> in your judgment. you read have done a lot of this for decades. is there some reason -- i am just asking you a simple straightforward question. caterpillar has created this very strong company, 90 years to build up. it turns over to its own -- to

itself as the tax haven 85% of future profits on parts. okay? doesn't get any compensation, any consideration for it. let me finish. the deal is future parts, you over it there, wholly-owned subsidiary you are going to get 85% of the profits on these parts and i am going to keep 15%. i am asking you a very simple question based on your experience. is there any way in heaven that caterpillar would transfer its rights to those profits to a company that wasn't related to itself. that is all i am asking. not asking give it has to but in your experience would it?

no compensation, no consideration, it loses 85% of the profits it has been receiving, continues to operate the company, it has to continue under the agreement, same operations in illinois so it keeps doing the same thing it has always done the turning 85% of ports profits worldwide and gets nothing--no consideration for it, yes or no. >> as a hypothetical what caterpillar would look at is exactly what you are expressing. >> would offer that to non related company. >> i don't know. >> sure you know! i am asking the separate question. do you not think it is incredible to believe that caterpillar would hand over 85% of its worldwide profits on parts, keep 15%, continue to

operate in illinois the way always has and everywhere else around world where does, get no consideration for that transfer. these things in any way they would offer that and do for no consideration for non related rules -- >> were ones that did evaluate the compensation caterpillar received. >> is there any way in your experience that caterpillar would make this deal with an unrelated company, this is the deal it made with itself to ship profits to europe, you say it was legitimate, i don't but that is beside the point. at the moment. that is not my question. my question is is there any way they would make this deal with an unrelated company? that is my question. >> i am sorry. i can't answer is that. >> you can do you won't? you have an opinion on that, don't you? after all your years of experience? >> i see companies that dispose of business operations all the time. caterpillar has done all the time.

you know what the deal was. >> 85% of the profits were shifted to a related company in switzerland. the tax savings are $300 million a year as a result of that strategy. that is why it was done. you have conceded that. everybody has conceded that. that is why it was done. that is why you sold it to them. >> i am focused on the question of value you are asking as well. >> a simple question. a simple question. i am asking you to give us an honest answer. >> where the economics of that deal appropriate yes they would. >> i'm asking you a question. >> i can't answer without that qualification. it would have to be based upon there believing they are receiving a return in exchange for that. >> with any rational company will be they're getting a return

handing over 80% -- >> if they were being relieved of all risk associated with that, if they were relieved of the capital -- >> operating the company, continuing to operate the company in illinois, the same operation, notion people a shifted, 5,000 people, a dozen people have to ship, 5,000 people worked for caterpillar, less than a hundred people worked in switzerland. nothing changes, maybe 12 people move. i am just asking you for an honest answer. is there any rational companies that would give up 85% of ongoing profits in the business that has been highly profitable put together over 70 years, highly profitable company, anyway this would be sold given away, no consideration? 85% of the profits on the ongoing parts business handed over? >> the answer is yes and the

economic circumstances caterpillar accepted. >> would they accept that with non related company, arm's-length? >> that is a standard we have to apply. >> i ask in the real world accompany do that. >> in the real world that is hypothetical, based upon an economic analysis. >> okay. >> take a look, mr. williams, at exhibit 4 a. >> i have that. >> this is a document, 1994, pricewaterhouse looked at the in tangibles for caterpillar including the swiss marketing

company which is the predecessor. here is what he w.c. described as relative roles of caterpillar and marketing companies developing the dealer network. the largest role with regard to market and dealer deployment development. >> it is on 8685 page. >> you see that on page 8685? it is the largest role with regard to market development, it has the largest single market, it was the originator of the basic marketing systems and concepts. it continues to be involved in worldwide marketing programs and

approaches. they also have major responsibility for american development, and their primary responsibility to do that. so the description of price waterhouse has the largest role, in 1994 with regard to market and dealer development. was that true? >> what i said was the dealer network was developed first in the united states in the 1920s-30s. originated and continued to be involved in the oversight. but other marketing companies employed those concepts, developed those concepts and expanded the dealer network and had daily interaction with dealers all over the rest of the world. >> where do you see that? >> in the last -- >> where d see that? >> that is my knowledge of the company? >> were d.c. that? >> it does not say that on the

page. >> the back to the document. this is what you said in 1994. it has the largest for role with regard to market computer development and give us three reasons. the marketing companies also have a major responsibility. but the largest role, you said in 1994 was caterpillar. was that true? >> that was the way caterpillar's viewed it. >> was that the way you view it? >> that was my understanding at the time. >> you believe it was true. >> was what we wrote and i believe that. >> if you look at 1995 transfer pricing documentation, exhibit 4 b, page 8930. caterpillar has the largest role with regard to market and the

lead development in 1995. right? was that true? >> that is what it says in this text? >> did you read that text? >> i was involved. >> was a true when you wrote it? >> that was how the company viewed it. >> did you believe it was true when you wrote it? >> yes. that was how the company views it. >> did you believe it was true when you wrote it? >> at the time, caterpillar starting in 1994 changed. >> i understand the 9 asking if the statement was true when you wrote it in 1996. >> that is my understanding, yes. >> you said the same thing in 1997. >> we use much of the same language in these reports as they are updated each year. >> did you believe it was true? >> i used that language in 1997. >> a pretty straightforward question. did you believe it was true when you wrote it?

>> based on the facts of the time yes, i believe that. >> thank you. i thank the witnesses. your job is to advise companies and corporations how they can maximize their profits and in keeping with the existing tax code as it is written. is that true? >> that is true particular the with respect to their operations. >> so this was this restructuring obviously resulted in increased profits for caterpillar. right? >> i believe the increased profits largely resulted from the expansion of their markets, provided the opportunity to expand their markets using the different base. >> to this day do you believe

there is any violation of the tax code as it was written then? i don't know how much it has changed since, that you were completely in compliance with existing law and regulations. >> that is my belief. >> thank you, mr. chairman. senator johnson. >> thank you, mr. williams. during the 1990s caterpillar assigned a 13% profit to its marketing companies. it indicated it viewed them as having some value which everybody concedes. not a lot of value. that was before the 1999 tax strategy was implemented so now let's look at what caterpillar did after the attack strategy was implemented. look at 2001.

please look at exhibit 13. >> you have it? >> i have that. >> this is a 2001 economic analysis prepared by p.w. see valuing the marketing intangibles of caterpillar america. you have announced this is a miami-based u.s. company that

was transferring its assets. since it served as capital's marketing company for dealing network in america, caribbean and canada. did you participate in this? >> yes. >> d w c describes the responsibilities as virtually identical to the functions, a signing contracts with independent dealers in the region, purchasing products and parts, reselling them to dealers, helping with logistics support, maintaining minor parts inventories, helping dealers identified performance issues, providing dealers with marketing information and sales training, helping them with financing and conducting monitoring and oversight activities to ensure compliance by dealers with the terms of dealer sales and service agreements. that is all from this document.

on pages 4 p.w. see list the marketing in tangibles. they consist of the relationship with caterpillar's independent dealers, its training programs, its order tracking software, various procedures and manuals, website, and concern value and any other marketing related in tangibles. sounds familiar? these are the same things. on page 6, mr. williams, take a look at the description of all these marketing in tangibles. see at the bottom?

functional analysis conclusions? you see that? >> yes, i have that. >> based on analysis of the tangible asset transferred we concluded that they are routine. and common. to most distribution and marketing companies. these assets have only limited economic life. could be effectively reproduced by new start up company with sufficient investment and time resources. therefore we conclude that the intangible assets transferred have very limited economic value. and this value is related to its assembled workforce in place. was that true? >> that was the analysis. i would like to explain that. >> finish the sentence if you will. would you finish the sentence?

this was the analysis. >> i would like to expand on it. >> was it true is what i am asking you. i know you would like to expand on it now in front of this hearing. i understand that but i am asking you if it was true when you wrote it. that is all i am asking. >> that was the understanding we had at the time. as you point out, it was partially inconsistent with the other language we said. the reason for that is these were different analyses under different times, actually looking at different assets and different values. >> these are not basically the scene in tangibles. were the same in tangibles? >> we're looking at the intangibles in the united states. not including the intangibles outside the united states. >> would you describe these intangibles as pretty much the same? >> there were a lot of intangibles outside the u.s. and cia

ciaco's field and service reps were outside the united states looking at the dealers outside the united states. >> the same in tangibles? that you previously described as ciaco intangible? >> basically the same. they are not basically the same. >> different in tangibles, different from ciaco? >> these were the intangibles, without the activities of the individuals who deployed them. >> the activities performed by 9 u.s. employees. >> this was the marketing company for latin america, canada and the caribbean. >> that is correct. >> these are the in tangibles they had and is that correct? you identify these intangibles. and we can compare it 1:1. i have already done that accurately but never the less my

question is those in tangibles, i will read it to you again, those intangibles have limited economic value and it is mostly related to its assembled workforce. i am asking you this question. was that true? >> that is not totally complete. >> don't refer to somebody else. >> is it true but incomplete? >> i would prefer to expand on it by talking about the assets offshore. >> this is the assessment you made at the time. is that correct? >> the assessment at the time. >> it could offer further explanation that might be

helpful. >> i am asking what was said at a time for these in tangibles. in 1999 you attributed similar in tangibles, you can say they are not -- you have someone else determine reading them side by side whether those intangibles which were given huge value, given no value when it came to transferring these intangibles in the american company. >> the services that support them. >> anyone reading those documents decides, mr. williams said it was incomplete. was it incomplete? mr. quinn, was incomplete? >> he didn't have the

opportunity. >> this assessment, the assets it is evaluating, evaluating the same asset you are referring to in the earlier report. >> doesn't list all be in tangibles. >> the intangible assets itself. we value an asset that is separate and apart from services that might support those. when we look at the earlier report, we are trying to evaluate the income potential income being generated by caterpillar sorrow. in that case, the service itself. it is comparing apples and origins. >> both were in tangibles. >> intangible, and in the second case in tangibles it is enabling service listed as intangibles.

when the transfer was made they were both in tangible. is that correct? >> if you return to exhibit 12. and this is 2007.

>> you have that? >> yes, sir. >> where is this on 12. >> that is -- is that not an e-mail from you to mr. matthews? >> yes it is. >> okay.

you were talking about like ciaco they spent decades building of the dealer network around world which is what a marketing company does, spent decades and a brand name, and we say this, we say that -- [whispering] >> the second or third paragraph on the bottom. there is a caveat. in 2001, this is what you said.

we said in another transaction, at ciaco. >> that refers to ciaco. >> there is no significant marketing in tangibles other than the work force. >> no significant marketing in tangibles. >> it says no significant marketing in tangibles. >> the marketing in tangibles were part of pricewaterhousecoopers to's efforts offshore. >> the caveat was i was recognizing -- >> there was an inconsistency. >> in two different transactions under different circumstances, different approaches, different assets being valued that there

was a different conclusion. >> is that what you said? what is the caveat? why do you have to say that? is there not an apparent inconsistency? >> apparent inconsistency. differences in the transactions, that is what i was advising my staff we needed to reconcile those different approaches. >> you yourself saw an apparent inconsistency at the time. >> take a look, mr. quinn, you were responding to an e-mail of

mr. williams. look at exhibit 46 please. >> that is an internal e-mail. i have that. >> i would like you and mr. williams to look at this e-mail exchange between the two of you regarding what you both seem to see as a problem regarding ciaco's ability to justify receiving the lion's share of non u.s. parts, profits in switzerland. the first female, mr. williams, you wrote to mr. quinn in the last sentence, quote, just curious. say they decide most part managers stay in the u.s.. how do we >> reporter: ciaco's profit?

if those u.s. entrepreneurs claim machine and parts. >> it refers to product managers. >> did i say part? ayn rand product manager. did you have a concern about whether the product managers located in the united states might claim the parts profits related to the parts that they designed? >> my point was related to ad. >> could i ask you this question directly? did you have a concern about whether product managers located in the united states might claim the parts profits related to the parts that they designed. was that a concern of yours? >> the concern was relocating product managers from switzerland to the u.s.. i was concerned by taking those entrepreneur real functions out of switzerland and relocating them to the u.s. it would give me a concern.

>> was it the answer that answers no to my question? >> there was a concern about the relocation. >> i am saying they might claim the parts profits? whether or not parts, product managers, i will ask you again. was very concerned that product managers located in the united states might claim the parts profits related? yes or no. >> the relocation of individuals from switzerland to the u.s.. >> you responded to mr. williams in the next e-mail. product managers will put pressure on the parts profit model. these guys really bought into the idea that p.m. is the key concepts. we have to create a story that

will put some distance between them and parts. to retain the benefit. get ready to do some dancing. mr. quinn? >> is there a question? >> what do you mean you have to tell a story and this in dancing? let me ask you this question. was it not affect the product managers to design parts in the united states normally get the profits related to those parts but that you are going to have to justify sending most of the parts profits to switzerland where they have few product managers. is not that the case? >> this was -- >> enter yes or no. >> i am not sure. could you repeat the question?

>> yes. was it the fact that product managers who designed parts in the united states normally get the profits related to those parts, but you are going to have to justify sending most parts profits to switzerland where they have few product managers? >> that is not the intention. >> what did you mean by dancing? >> that was a very poor choice of words. the first time i had knowledge of restructuring that caterpillar was proposing in 2008 which would change the substance back in place in the early reorganization that began in 1999. my concern here was in fact that would change some of the circumstances we rely upon in terms of economic analysis and we needed to make sure

management understood the tax consequences. >> and mr. williams, this says most part managers stay in the united states. parts managers moving to the united states. >> product managers? >> mr. williams, this says say they decide most product managers in the united states, that is inconsistent with what you just said which was about product managers moving to the united states. >> there were product managers in geneva supervising important products outside the united states. this reorganization announced that the end of 2008 to take effect in 2009 when it relocated product managers to the u.s. and

taking with them the significant entrepreneur responsibilities. that was our concern. >> decide that most park managers stay in the united states. stay in the united states. is that not your memo. >> out of the 15 or 20 product managers they were proposing all of them be in the united states. that is the meaning of the word. >> but you say the concern was they move to the united states, not a concern of this memo. why did you word -- why did you use the words they instead of move? >> the existing location of them was the recommendation was to have them all in the united states. >> you were worried about move to the united states? >> move and staying in the united states no longer having anyone, no longer having those

positions in switzerland. >> is that what you just testified? >> i said to you, >> the e-mail says the concern was a stay in the united states. >> just asking, that time already there are several important product managers in switzerland. in 2009 and the future. >> so the reorganization would have put and state everyone in the u.s. and concerned about every organization and its effect on the tax benefits. we needed to assist corporate tasks to explain to the executive office for the proposed reorganization. >> you responded we will all be retired when this comes up on august. >> that was also an inappropriate use of words and

attempt at humor. >> humor hit bottom and chris dunn will have to resolve it. would that be humor to them? >> that would not be humorous to them. >> did you know that mr. quinn and mr. williams had to figure out a story. and dos in dancing when the whole issue came to a head. >> you were on the audit team? >> i was not aware of these. >> did you know p.w. sea stacks themselves to take an inconsistent position regarding the value of marketing in tangibles at ciaco? >> mr. chairman, i believe -- in tangibles. >> i don't agree with that inconsistency. >> you don't believe there was

inconsistency. mr. bauer, one of our experts said he never heard of a company taking two sets of inventory books using virtual inventory systems separate and apart from the company's general inventory system, one to track parts for the business enterprise and the other to keep track of inventory for tax purposes. prior to caterpillar's use of the inventory system have you ever heard of but virtual inventory system? >> different management books from legal books are very common. >> i am not talking about that. i am asking about inventory systems. have you heard of a virtual inventory systems prior to caterpillar use of inventory system? >> that particular term i have not heard of. >> have you heard of a virtual inventory system? >> and inventory systems similar to what has been referred to as

virtual i have seen before. >> you see it but never heard it described as a virtual one. >> difficult to understand and inventory been is of very physical thing. >> is that what you told staff? you asked specifically about a virtual inventory system. did you not tell us that you never heard of it? >> depends how the question gets asked. >> the virtual a virtual inventory system i have not heard of but when you think about what that sentence says, and inventory been is a very real thing. >> therefore if it is emerged, very straightforward to have an inventory been, some parts belong to one owner and other parts belong to another. >> usually identified some way. >> why would that be the case?

>> they don't need to identify. did you have discussions with the p.w. c audit team or the consultant for caterpillar about tax risks associated with this virtual inventory. did you ever have discussions? about task risks and doing what they were doing? >> i had conversations about task risks, it was my role to provide assistance and advice to the audit partner. >> did you have concerns? >> not with respect to this inventory system. >> so you never discussed this inventory system with them? >> i explained this inventory system. >> did you ever have concerns? >> i did not have concerns. >> do you have anything?

>> thank you all very much, appreciate your testimony, your cooperation with this committee. >> booktv on c-span2. ..