Vanguard lawsuit threat - Fees might be TOO low!

[projekt]

I'm not sure if it belongs here or in the antimustachean wall of shame and comedy, but there is apparently an effort by a former Vanguard employee and associate counsel to get a court to agree that Vanguard's fees are so low that they are actually depriving the governments of revenue they deserve. Even though Vanguard doesn't actually make the money, the concept is that they could, so they really owe billions in back taxes and, of course, the lawyer gets a cut.

It truly is bizarro-land out there.
Newsweek: http://www.newsweek.com/2015/12/25/vanguard-whistleblower-tax-dodge-complaint-400901.html
Bloomberg View: http://www.bloombergview.com/articles/2016-02-10/vanguard-is-more-mutual-than-most-mutual-funds

It's interesting in a way to me because there are some small businesses that operate as not-for-profit while doing something that usually is for-profit. They have a big advantage because they do not pay income tax on their principal payments on their loans, because that's not considered profit for a not-for-profit.

[JetBlast]

Here's a thread from a couple months ago when this first made news, though the thread was fairly short. The link from one of the poster's to Joshua Kennon's blog post on the issue is worth checking out, as it breaks down the issue well and it's good to get an opposing viewpoint to the cult of 'Vanguard can do no wrong'.  Though Vanguard is still quite good at helping typical investors.

http://forum.mrmoneymustache.com/investor-alley/vanguard-not-paying-their-taxes/

[MustacheAndaHalf]

I have a good way to refute the case for Vanguard Total Stock Market - the following fees:

SCHB, US Broad Market ETF, 0.03% expense ratio (holds about 2000 stocks)
ITOT, iShares S&P 1500 Index Fund, 0.03% expense ratio (despite name, has 3830 stocks)
VTI, Vanguard Total Stock Market ETF, 0.05% expense ratio (holds 3728 stocks)

Vanguard could lower it's Vanguard Total Market ETF expense ratio and still not be the low cost leader.

[nobodyspecial]

Vanguard's fees are so low that they are actually depriving the governments of revenue they deserve. Even though Vanguard doesn't actually make the money, the concept is that they could, so they really owe billions in back taxes

The accusation isn't that they are too cheap but that it's a transfer pricing tax-dodge. Where company charges another part of the same company an unreasonable amount so it makes a loss and doesn't pay tax.
The holders of the ETFs are also owners of the brokerage that sells them so they can arrange that the brokerage makes no profit.

It isn't - but the lawyer was hoping for a nice cashback from the government.

[Retire-Canada]

http://forum.mrmoneymustache.com/investor-alley/vanguard-owes-billions-in-taxes/

http://forum.mrmoneymustache.com/investor-alley/vanguard-forced-to-raise-fees/

^^ previous recent threads.

[projekt]

Tried to search previous threads but either search was down or couldn't find it.

I think that this will be laughed out of court in the end, because Vanguard kicked off an industry of for-profit firms following suit, as shown above. Their more cost-intensive mutual funds do have higher expense ratios. What Vanguard (Corporation) could do is offer their management services at the same price for other mutual fund companies. That would definitively show that there is no transfer pricing arrangement.

[JetBlast]

http://forum.mrmoneymustache.com/investor-alley/vanguard-owes-billions-in-taxes/

http://forum.mrmoneymustache.com/investor-alley/vanguard-forced-to-raise-fees/

^^ previous recent threads.

Thanks for digging those out. I had a hard enough time finding one thread even though I knew there were a few of them.