BULLETIN: SCC Releases Decision in GlaxoSmithKline Inc.

This morning, the SCC dismissed the appeal and cross-appeal in Canada v. GlaxoSmithKline Inc., 2012 SCC 52, a highly anticipated decision dealing with transfer pricing under s. 69(2) (now s.247(2)) of the Income Tax Act.

The Minister of National Revenue reassessed Glaxo Canada for the taxation years 1990, 1991, 1992, and 1993 on the basis that the prices it paid to a related company for ranitidine, the active pharmaceutical ingredient in the brand name anti-ulcer drug Zantac, were greater than the amounts that would have been reasonable in the circumstances had they been dealing at arm’s length.

Affirming that transfer pricing analysis is not an “exact science,” the SCC held that the determination of an arm’s length price must be informed by relevant surrounding economic circumstances, including other transactions that may be related to the purchasing transaction. On the facts, a royalty agreement entered into by Glaxo Canada with a different related party informed the price that was paid for ranitidine since it was paying for at least some of these rights and benefits as part of the purchase prices for ranitidine.

The case has been sent back to the Tax Court for reconsideration in light of the principles articulated by the top court. Stay tuned for more detailed commentary on thecourt.ca!

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