Classic Transfer Pricing Case: Canada v. GlaxoSmithKline Inc. 2012

By Robert Robillard - 28 May 2014

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In Canada v. GlaxoSmithKline Inc., 2012 SCC 52, [2012] 3 SCR 3 (CanLII), the Court reaffirmed :

“The assumption that the prices paid by Glaxo Canada for ranitidine were greater than the amount that would have been reasonable in the circumstances had Glaxo Canada and Adechsa been dealing at arm’s length has not been demolished. As found by the Federal Court of Appeal, the matter should be remitted to the Tax Court to be redetermined, having regard to the effect of the Licence Agreement on the prices paid by Glaxo Canada for the supply of ranitidine from Adechsa. Whether or not compensation for intellectual property rights is justified in this particular case is a matter for determination by the Tax Court.”

The transfer pricing case:

“I. Introduction

[1] Transfer pricing issues arise when entities of multinational corporations resident in different jurisdictions transfer property or provide services to one another. These entities do not deal at arm’s length and, thus, transactions between these entities may not be subject to ordinary market forces. Their absence may result in prices being set so as to divert profits from the appropriate tax jurisdiction. Since 1939, the Income Tax Act has included provisions under which a Canadian taxpayer may be reassessed to include, in Canadian profits, the difference between the prices for property paid to a non-resident with which it does not deal at arm’s length and what those prices would have been had they been dealing at arm’s length.

[2] The Minister of National Revenue reassessed GlaxoSmithKline Inc.(“Glaxo Canada”) for the taxation years 1990, 1991, 1992, and 1993, pursuant to the then-applicable s. 69(2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the “Act”), on the basis that the prices Glaxo Canada paid to a supplier with which it did not deal at arm’s length, for ranitidine, the active ingredient in the anti-ulcer drug Zantac, were greater than an amount that would have been reasonable in the circumstances had they been dealing at arm’s length. (Section 69(2) of the Act was repealed in 1998 (S.C. 1998, c. 19, s. 107) and has been replaced by s. 247(2) of the Act (ad. idem, s. 238)). The reassessment increased Glaxo Canada’s income by the difference between the highest price paid by generic pharmaceutical companies and that paid by Glaxo Canada for ranitidine. Glaxo Canada appealed to the Tax Court of Canada, where Rip A.C.J. (as he then was) upheld, with one minor revision, the reassessment. On Glaxo Canada’s further appeal, the Federal Court of Appeal allowed the appeal and remitted the matter to the Tax Court for reconsideration. The Minister has appealed that decision to this Court.

[3] The issue on appeal is the correct application of s. 69(2): in particular, what circumstances are to be taken into account in determining the reasonable arm’s length price against which to compare the non-arm’s length transfer price. Glaxo Canada cross-appeals the decision of the Federal Court of Appeal to remit the matter to the Tax Court for rehearing and reconsideration. If this Court denies the Minister’s appeal, Glaxo Canada argues that the matter should not be remitted because it has successfully demolished the Minister’s assumptions, thus fully discharging the taxpayer’s burden in appealing the reassessment. For the reasons that follow, I would dismiss both the appeal and the cross-appeal.”

To see the transfer pricing full case click here. Aussi disponible en français sur ce lien.

Canada v. GlaxoSmithKline Inc., 2012 SCC 52, [2012] 3 SCR 3 (CanLII)

Canada c. GlaxoSmithKline Inc., 2012 CSC 52, [2012] 3 SCR 3 (CanLII)

Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard “at”

RBRT Inc. is all about transfer pricing. We specialize in transfer pricing. Our services include transfer pricing documentation, transfer pricing dispute resolution, advanced pricing agreement (APA), value chain management and TP planning, transfer pricing training. The information in this blog post is general information only. Data and information come from sources believed to be reliable but complete accuracy cannot be guaranteed. RBRT Inc. and the author are not responsible or liable for any error, omission or inaccuracy in such information. Readers should seek independent tax advice and tax counsel from RBRT Inc. as required.

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