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Good summary, but you left out the Plaintiff's argument. Their argument is ridiculous but it bears summarizing. The law requires transactions between affiliat

by 300bps 11y ago

Good summary, but you left out the Plaintiff's argument. Their argument is ridiculous but it bears summarizing. The law requires transactions between affiliated businesses to be "arms-length" [1]. That means that both parties come to an agreement freely and independently and that the agreement not be influenced by a special relationship between the entities. Without this rule, you can run into situations that allow companies to dodge taxes. Apple and many other companies do this all the time to take U.S. profits and funnel them to Ireland to avoid paying U.S. taxes [2]. Plaintiffs are arguing that Vanguard is violating the transfer pricing rules by having its holding company charge its mutual fund affiliates fees that are substantially lower than market rates. In fact, their argument is that Vanguard is charging 0.20% of assets managed when it should be charging 0.75% of assets managed which they claim is the market rate. Plaintiffs further claim that by charging lower than market rates due to their special relationship that Vanguard owes $34.6 billion in back taxes from 2007 to 2014. As such, Plaintiff would be entitled to $10 billion commission by bringing this to the government's attention. And that brings us to why Plaintiff is doing this. They know the odds are so ridiculously stacked against them but it's a cheap lottery ticket for a chance to win $10 billion. And if they can put enough FUD into news articles about Vanguard [3] they just might be able to convince Vanguard to settle for a few tens of millions to make them go away. [1] https://www.irs.gov/pub/int_practice_units/ISI9422_09_06.PDF https://www.irs.gov/pub/int_practice_units/ISI9422_09_06.PDF [2] https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement [3] http://www.reuters.com/article/vanguard-lawsuit-taxes-idUSL1N11V1FK20150925 http://www.reuters.com/article/vanguard-lawsuit-taxes-idUSL1...

ikeboy 11y ago
Why is the argument ridiculous?
Lazare 11y ago
> Without this rule, you can run into situations that allow companies to dodge taxes. Apple and many other companies do this all the time to take U.S. profits and funnel them to Ireland to avoid paying U.S. taxes It doesn't really change your overall point, but that's not exactly true. Apple uses transfer prices to take non-US profits and funnel them to Ireland. They then use tricks such as the Double Irish and the Dutch Sandwich to minimise their Irish taxes. However they can't avoid US taxes; all they can do is delay them. If and when those profits are moved to the US, they'll still be taxed at the full US rate; all the fancy Irish tricks won't do anything. And those tricks don't work on US profits at all; since Apple's IP is owned by the US firm, they can't transfer US profits to the Irish subsidiary.
- wrsh07 11y ago
  This is true, but that's also why they're willing to buy high value companies outside of the US. They can essentially have two separate budgets: Money already in the US [to be spent in the US] and money outside of the US which will have more buying power if spent outside of the US.

by 300bps 11y ago

ikeboy 11y ago

Why is the argument ridiculous?

Lazare 11y ago

> Without this rule, you can run into situations that allow companies to dodge taxes. Apple and many other companies do this all the time to take U.S. profits and funnel them to Ireland to avoid paying U.S. taxes It doesn't really change your overall point, but that's not exactly true. Apple uses transfer prices to take non-US profits and funnel them to Ireland. They then use tricks such as the Double Irish and the Dutch Sandwich to minimise their Irish taxes. However they can't avoid US taxes; all they can do is delay them. If and when those profits are moved to the US, they'll still be taxed at the full US rate; all the fancy Irish tricks won't do anything. And those tricks don't work on US profits at all; since Apple's IP is owned by the US firm, they can't transfer US profits to the Irish subsidiary.

wrsh07 11y ago
This is true, but that's also why they're willing to buy high value companies outside of the US. They can essentially have two separate budgets: Money already in the US [to be spent in the US] and money outside of the US which will have more buying power if spent outside of the US.