> A company can value it's services as it chooses. If the work is performed for $1 or $5000 the government doesn't get a say in that.

That's simply not true. You may get a certain amount of leeway, but it has to be reasonable.

No, it doesn't have to be "reasonable". Its only illegal if it is used to cover up some other illegal thing.

For example giving huge discounts below cost only to family members, which is more or less like paying them money without paying taxes for it.

Note that we’re talking about two companies exchanging services.

When two companies undervalue the services that they offer to each other, they pay lower taxes. This is the illegal part.

	▲	tstenner 3 minutes ago \| parent [-]
		If the expense is tax deductable, it mostly doesn't matter whether you have $10 earnings vs $10 business expenses or $10K.