The Resource R v GlaxoSmithKline Inc : 2012 SCC 52

R v GlaxoSmithKline Inc : 2012 SCC 52

R v GlaxoSmithKline Inc : 2012 SCC 52
R v GlaxoSmithKline Inc : 2012 SCC 52
Judgment by the Supreme Court of Canada, judgment date 18 October 2012. GSK was the Canadian member of the international Glaxo group which marketed the drug Zantac which it imported. GSK paid a related Swiss company (Adechsa) about five times as much as other importers paid for generic drugs with the same active ingredient, ranitidine. The revenue assessed GSK for withholding tax on the dividends it paid the group in respect of the difference between the prices it paid the Swiss company and the prices paid by importers of the generic equivalents. GSK objected, arguing that the prices it paid were proper when differences between Zantac and GSK's business on the one hand and generic drugs and their importers' business models on the other. GSK also argued that the transfer pricing regime did not apply as there was no payment to the benefit of the other party since the Swiss company was a loss maker, and also that it was a requirement that the taxpayer, the Glaxo group, would otherwise have been entitled to that sum. The Tax Court considered that the licence agreements within the Glaxo group were not a relevant consideration and essentially agreed with the revenue's model, adding a small amount to the price actually paid to account for some differences in the product imported by the taxpayer compared with the generic product. The taxpayer appealed. The Supreme Court of Canada rejected both the appeal by the Minister and the cross-appeal by the company against the decision of the Federal Court of Appeal. The primary issue in the Minister's appeal was whether the licence agreement should be taken into account along with the supply agreement in determining the arm's length price for ranitidine. The company had appealed on grounds that the case should not be remitted to the Tax Court for the determination of the correct arm's length price. The case will now be remitted back to the Tax Court to determine the correct price, taking into account the licence agreement. Perhaps most interesting in the case is the treatment of the OECD Transfer Pricing Guidelines. The Supreme Court noted that they were not controlling as if they were a Canadian statute. However, the Guidelines suggested a number of methods for determining the arm's length price, and the court discussed the approaches set out in the Guidelines. The court concluded that the Guidelines did not require the transaction of supply of the ranitidine to be examined separately from the background circumstance of the existence of the licence agreement and the rights granted under that agreement
Citation source
In: International tax law reports. - London. - Vol. 15 (2012),
Geographic coverage
North America
Language note
Baker, P
  • OECD Transfer Pricing Guidelines
  • case law
  • transfer pricing
  • licensing
R v GlaxoSmithKline Inc : 2012 SCC 52

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