Classic Transfer Pricing Case: GlaxoSmithKline Inc. c. Canada 2010By Robert Robillard - 28 May 2014
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In GlaxoSmithKline Inc. v. Canada, 2010 FCA 201 (CanLII), the case is returned to the Tax Court of Canada for consideration of the License Agreement as a circumstance relevant to the determination of the transfer pricing used by the taxpayer.
In short, the Court states that the “contractual terms” as a whole is a key factor to determine the arm’s length price of a controlled transaction. This is factor #3 of the comparability analysis as per the OECD Transfer Pricing Guidelines.
“ This is an appeal from a decision of Rip A.C.J. (as he then was) (the “Judge”) , 2008 TCC 324 (CanLII), 2008 TCC 324, which allowed the appellant’s appeals from assessments made under Part I of the ITA for the 1990, 1991, 1992 and 1993 taxations years, and assessments made under Part XIII of the ITA with respect to the appellant’s failure to withhold tax on dividends deemed to be paid to a non-resident shareholder in 1990, 1991, 1992 and 1993, and referred the matter back to the Minister for reconsideration and reassessment only to decrease the excess amounts paid by the appellant for ranitidine by $25 per kilo and to adjust the amounts of withholding tax accordingly.”
 As a result, I conclude that the Judge erred in law in failing to apply the proper test in determining “the amount that would have been reasonable in the circumstances” if the appellant and Adechsa had been dealing at arm’s length. Counsel for the appellant argued that in the event that we agreed with him that the Judge erred in not considering the License Agreement, we should then determine “the reasonable amount”. In my view, that determination ought to be made by the Judge, who heard the parties for well over forty days, and not by this Court.  Whether the consideration of the License Agreement as a circumstance relevant to the determination of “the reasonable amount” will lead the Judge to the conclusion sought by the appellant is not for us to say. For example, the Judge may find that the generic companies are no longer a good comparator and that another group is more appropriate. On the other hand, he may determine that no comparator is necessary for him to make a final determination. Consequently, I am not inclined to make the ultimate determination which the appellant seeks, but prefer leaving the matter to the Judge to make such a determination or any other determination which he finds to be warranted in the light of a full record on the issue. Whether the present record is sufficient to allow the Judge to perform that task, I cannot say. The Judge may be satisfied that the record is sufficient or he may request the parties to adduce additional evidence and submissions as a result of this Court’s decision.
Disposition I would therefore allow the appeal with costs, set aside the Tax Court’s decision and I would return the matter to the Judge for rehearing and reconsideration of the matter in the light of these Reasons.”
Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard “at” rbrt.ca
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