Classic Transfer Pricing Case: Glaxo Smithkline v. The Queen 2003

By Robert Robillard - 28 July 2014

This blogpost originally appeared on

Glaxo Smithkline v. The Queen, 2003 TCC 258 (CanLII) discussed the legal consequences when there has not been substantial compliance with a requirement pursuant to subsection 231.6(8) of the Income Tax Act.


“[1] This appeal under the Income Tax Act (the Act) concerns the price at which the Appellant (Glaxo) purchased the chemical compound ranitidine from certain affiliated foreign companies (the affiliates), for import into Canada, during its 1990, 1991, 1992 and 1993 taxation years. The Appellant and those affiliates are all part of a large multi-national group of companies (the Glaxo group) that manufactures and distributes various pharmaceutical products worldwide. The Appellant is the operating company in Canada, and it manufactures, in Canada, a widely prescribed drug for the treatment of ulcers. To do so, it purchases supplies of ranitidine manufactured by the foreign affiliates, and sold to it through a Swiss affiliate, for use at its Canadian manufacturing facility. At issue is the reasonableness of the consideration that was paid by the Appellant to the affiliates for ranitidine. The Minister of National Revenue says that the consideration was not reasonable in the circumstances, and has assessed accordingly. It is from those assessments that these appeals are brought. In addition to the Glaxo foreign affiliates, there are other primary manufacturers of ranitidine in other countries, and they supply it to generic manufacturers in Canada and elsewhere. These Canadian generic manufacturers operate in competition with the Appellant, selling finished product into the Canadian market. The Appellant has pleaded that the appropriate method by which to determine the transfer price for purposes of the Act is the resale price method; the Respondent says it is the comparable uncontrolled price (CUP) method, or alternatively, the cost-plus method, that should be used. Each party has produced many thousands of documents, and there have been weeks of examinations for discovery. The trial will not take place before the end of this year. All this is said simply to put in context the motion that is now before me.

[2] The Respondent now moves for an Order under subsection 231.6(8) of the Act. If granted, the Order would have the effect of prohibiting the Appellant from introducing at the trial any of a large body of documents, as well as certain unspecified (and perhaps indefinable) oral evidence. I was told on the hearing of the motion that there are some two hundred documents that both parties agree would be covered by the Order, and that there are perhaps as many as 40,000 additional documents that the Respondent submits would also be covered by it. Neither party attempted either to specify or to quantify the oral evidence that the Order would cover, nor do I know of any practicable way in which that could be done.

[…] [6] The Appellant does not dispute that the requirement under section 231.6 was properly served on it, nor that it contained all that it was required by the section to contain. Nor did it make an application to a judge under subsection 231.6(4) to have the requirement either varied or set aside, as it could have done. However, only one document was produced in response to it within the time fixed for compliance. From the extensive affidavits and cross-examinations that were filed on the hearing of the motion, it appears that the position taken by the Appellant’s parent company was that it was undesirable to produce the documents covered by the requirement, for reasons unrelated to the audit that was taking place. In addition, the Appellant apparently misconstrued the scope of the requirement, thinking that what was required by it did not go beyond the scope of the informal request that had been made earlier by Mr. Burkimsher.

[…] [22] […] The United States Congress has enacted similar legislation. [Title 26, Subtitle A, Chapter 1, Subchapter N, Part III, subpart I, Sec.982.] It provides for a general prohibition on the introduction of foreign-based documents covered by a formal document request, but subject to a general exception if the taxpayer can show reasonable cause for the failure to produce the required documents. In the present case, however, there is no issue of reasonable cause. The Appellant made virtually no attempt to comply with the requirement, for its own reasons, or those of its parent. There is no need for a reasonable cause exception in the present case. All that is required is that the trial judge have the power to permit the Appellant to proffer evidence in rebuttal that would otherwise be excluded by section 231.6, if that is necessary to prevent injustice. The Order will therefore provide that the Appellant is prohibited from introducing in this proceeding, at the trial or otherwise, any foreign-based information or document covered by the notice delivered to it pursuant to section 231.6 of the Act on March 16, 1995, otherwise than as rebuttal evidence, or in cross-examination, and only with leave of the trial judge. Costs of the motion will be in the cause.”

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

Glaxo Smithkline v. The Queen, 2003 TCC 258 (CanLII)

Glaxo SmithKline Inc. c. La Reine, 2003 CCI 258 (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.