Kevin McCoy

USA TODAY

The Senate committee hearing was scheduled to focus on heavy machinery giant Caterpillar's avoidance of $2.4 billion in U.S. taxes by shifting profits to a wholly owned Swiss subsidiary.

But Tuesday's proceeding, held as Americans prepare for the annual April 15 tax-filing deadline, instead featured partisan debating points over the federal tax code and U.S. industry competitiveness.

For nearly five hours, Sen. Carl Levin, the Michigan Democrat who chairs the Permanent Subcommittee on Investigations, single-handedly grilled officials of Caterpillar and the company's accounting firm about the Switzerland tax strategy.

A report by the panel's Democratic majority staff concluded that the shift of $8 billion in international machinery-parts profits to the subsidiary was made possible by legal tax loopholes — though little changed with the manufacturer's parts business.

"Most of Caterpillar's parts executives are here, most of its parts employees are here, most of its parts are designed here, most of its parts are built here, most of its parts are stored here, most of its orders are filled here and most of its parts are shipped from here," said Levin. "Yet most of its international parts profits go to Switzerland."

Executives of Caterpillar and PricewaterhouseCoopers, the accounting and auditing firm that helped devise the strategy, said the change aligned machinery-parts management with the manufacturer's growing international business.

" I want to emphasize Caterpillar complies with the U.S. tax laws, and we pay everything we owe," said Julie Lagacy, vice president of the company's finance services division. She stressed that the company pays an effective tax rate that averages about 29%, higher than at some U.S. firms.

Levin, however, highlighted internal documents about Caterpillar's plan to transfer parts-management to a "low-tax" jurisdiction. He also cited a 2008 e-mail in which PwC executives who helped devise the strategy wrote: "We are going to have to create a story that will put some distance between them and parts ... to retain the (tax) benefit. Get ready to do some dancing."

"It was a tax deal," said Levin, arguing the U.S. Treasury and taxpaying Americans were harmed.

Committee Republicans insisted the only villain was the tax code.

"There's no doubt that that's a factor in moving operations overseas" and "parking those profits overseas rather than bringing them back to be subjected to a 35% corporate tax rate," said Sen. John McCain, R-Ariz., the panel's ranking GOP member. "This makes a compelling argument for broader tax reform in order to ensure our tax code is fair, competitive and a vehicle for economic growth."

Sen. Ron Johnson, R-Wis., questioned the hearing testimony of legal experts who expressed skepticism about Caterpillar's tax strategy. If the manufacturer were suspected of doing anything improper to reduce its tax bill, that should be addressed by the IRS or U.S. Tax Court, "not Congress," he said.

Sen. Rand Paul, R-Ky., went further, arguing that the subcommittee should give Caterpillar an American business award "instead of vilifying people for legal behavior."