Ritchie and his friends are insistent that there\’s a huge amount of tax fraud going on as a result of transfer pricing. There are others who regard it all as a problem pretty much under control but that\’s not the point here. Here\’s a suggestion from Ritchie and friends as to how to prevent such abuse:
Require transactions above a designated value to be conducted via confirmed, irrevocable letters of credit.
Do these people have absolutely no idea at all about how trade is conducted?
You might use an LC with a new supplier, customer, you might not. But you don\’t use them with long standing relationships because they are expensive and take boringly large amounts of time to sort out.
Long standing readers will know that I\’ve been playing in the sandpit that is the international metals market for a decade and a half and we\’ve never used an LC. We take credit from our suppliers and offer it to our purchasers. That\’s how business works.
Why on earth are they insisting that I should pay a bank a couple of grand in fees when I buy something from a bloke I\’ve been dealing with for 15 years?
Are they mad?