In the current era, it is however uncommon for consumers to simultaneously own and (exclusively) be the customers of a company. (Historically, that is of course the entire principle of mutual funds.)
Moreover, in this case the fact that Vanguard is a co-op is a redeeming factor. If it were a typical corporation charging itself below-market transfer prices, that would likely be illegal.
Another standard does, in fact, set a minimum level of transactional profit based on comparable businesses. [0]
[0] https://en.wikipedia.org/wiki/Transfer_pricing#Comparable_pr...
That being said, in principle it's all mostly the same since investors own Vanguard.
Crappy morning lead to unwarranted piss-poor attitude. No excuse, but wanted you to know that I appreciate rehabilitation rather than punishment!
I'm well aware what a mutual fund is and, for the record, think this case is pretty stupid and unlikely to be won. But it's important to understand that there actually are tax principles in play here.
Have you heard of transfer pricing? I suggest reading anything.
[0] http://www.bloombergview.com/articles/2015-11-25/calpers-fee...
It's a lot less crazy than it sounds, because they are wholly owned by Vanguard. So the customer is effectively setting the fees.
There are certainly scenarios where you could see how this is clearly abusive. As a contrived example, imagine if Apple moved its legal headquarters to Ireland and made California into a subsidiary. They would still have to pay the California subsidiary for the design services it provides, but they could set those fees at way below market price and thereby shift all tax liabilities to a lower tax jurisdiction. We have transfer pricing rules in place to prevent this.
The situation is more complicated than this because the fund (the client) is not a profit-seeking corporation, so it's not arbitrarily moving funds around. It's an odd scenario where the customers are also the owners.