Microsoft annual report (10-K), 2015: "Tax contingencies and other tax liabilities were $12.1 billion (as of) June 30, 2015 . . . The primary unresolved issue relates to transfer pricing, which could have a significant impact on our consolidated financial statements."
Amazon.com annual report (10-K), 2015: "The IRS is seeking to increase our U.S. taxable income related to transfer pricing with our foreign subsidiaries." The increase, for tax years 2005-06, "would result in additional federal tax of approximately $1.5 billion" - plus "significant additional tax liabilities" if the IRS wins in U.S. Tax Court and applies the ruling to more recent years.
Apple annual report (10-K), 2015: "The company's effective tax rates for 2015, 2014 and 2013 differ from the statutory federal income tax rate of 35 percent due primarily to certain undistributed foreign earnings," mostly stored at Irish subsidiaries. As of Sept. 26, those net deferred tax liabilities totaled $16.3 billion.
Vanguard Group, amended application to the SEC for an order exempting the company from sections of the Investment Company Act, 2015:
"In 1975, the [SEC] granted exemptive relief to certain funds advised and managed by Wellington Management Company that permitted those funds to internalize their corporate administrative functions by owning and operating a service company - VGI (Vanguard Group Inc.) – that would provide those functions at cost, . . . According to the most recent version of the agreement, each Vanguard fund must pay VGI 'its share of the direct and indirect expenses of providing corporate management and administrative services, including distribution services of an administrative nature.' "
Expert Report of Reuven Avi-Yonah on Vanguard's federal tax liability, submitted to the IRS, 2015:
"Vanguard has no legal justification for its transfer pricing practice of operating its U.S. mutual funds 'at cost.' . . . If the IRS were to pursue the matter, it will prevail in court. . . . 'At cost' pricing was proposed by Vanguard for a limited set of services that excluded investment management and advisory. . . . Because of the 'at cost' structure, Vanguard shows little or no net income on its Federal and state income tax returns. This situation enables Vanguard to undercut the prices set by its competitors at the expense of the U.S. Treasury, which has enabled it to become the largest mutual fund manager in the world." He estimated Vanguard's federal tax liability, for 2007-14, at $34.6 billion.
- Joseph N. DiStefano