The Vanguard Group one of the world’s largest investment funds with $3 trillion under management illegally evaded taxes through transfer pricing, says whistleblower David Danon, a tax attorney at Vanguard for nearly five years. He became aware of a transfer pricing arrangement while at Vanguard and its affect on corporate taxes. He filed a whistleblower action in 2013 under the New York False Claims Act. He alleges that Vanguard charges its own funds at cost prices for management services, which is below market pricing. Vanguard says that the Securities and Exchange Commission issued an order approving :joint participation arrangement. Danon says that order allowed the transactions for securities purposes not taxes.
Transfer pricing means the sale of goods and services between related companies. Where companies are separate entities for legal and taxes reasons, transactions between them must be at arms length–the price that a willing buyer and seller would pay in a legitimate transaction. Transfer pricing allegations in the past have generally been made against companies dealing with their related subsidiaries located in other countries. Apple Inc. and Starbucks have been alleged to have been engaged in transfer pricing. In this case against Vanguard, there is no allegation of shifting income to foreign tax havens as all of the Vanguard transactions in question occurred domestically.
Danon says that the low taxes have allowed Vanguard to gain profits and outgrow its competitors. In addition to filing his action in New York, Danon also filed a whistleblower action with the Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC).
If successful, Danon could receive a percentage of up to 30% of any moneys collected by New York, the IRS or the SEC.
Jeffrey Newman represents whistleblowers. He does not represent Danon in his case.