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The issue is they are charging themselves a lower fee, instead on an "arms-length" (higher) fee that they would to a third-party. Somewhere in there, I suspect
by ghshephard 11y ago
The issue is they are charging themselves a lower fee, instead on an "arms-length" (higher) fee that they would to a third-party. Somewhere in there, I suspect, is an argument that the lower fees are designed to avoid taxes, rather than reduce costs.
- m1sta_ 11y agoAvoid taxes = reduce costs, as long as it's legal.
- ghshephard 11y agoRight, the "as long as it's legal" is the interesting part. For instance, what if you have two entities, one of which is a "for profit" which pays full taxes, and then another that is somehow placed in a different preferential tax bracket. By shifting/transferring all of the costs to the higher tax bracket entity, and having it further reduce profits by charging low fees, and moving all of the resulting "profit" that then accrues to the lower-taxed entity. How, and when you can engage in such activity I'll lead to tax attorneys, but it's not a no-brainer "You should always be able to charge lower fees and transfer profits away from one entity to another." There is some nuance.
- deleted 11y ago[deleted]
- morgante 11y agoThat only applies if it is, in fact, legal. We have specific laws in place to prevent corporate tax evasion through unrealistic transfer pricing, and it's unclear if Vanguard falls afoul of those rules.
- walshemj 11y agoNo it isn't transfer pricing is transferring profits from a low to high tax country eg UK-> IE.
- morgante 11y agoYes, in general that's the goal of transfer pricing. However, the way the rules are written it's not clear if they also apply to this case, particularly because the IRS does not recognize intent as a factor in transfer pricing rules. To be clear, I do think this should be legal and kosher. But I sort of see how the argument could be made.