Canada v. GlaxoSmithKline Inc.

Canada v. GlaxoSmithKline Inc. is a landmark case in Canadian tax law that was decided by the Supreme Court of Canada in 2012. The case revolved around the issue of transfer pricing, a method used by multinational corporations to allocate profits among different jurisdictions.

Background

GlaxoSmithKline Inc. (GSK Canada) is a subsidiary of the multinational pharmaceutical company, GlaxoSmithKline. GSK Canada purchased the active ingredient for its anti-ulcer drug, Zantac, from a related company in Switzerland. The price paid by GSK Canada for this ingredient was significantly higher than the price paid by generic drug manufacturers for the same ingredient.

The Canada Revenue Agency (CRA) argued that the price paid by GSK Canada was not at arm's length and reassessed GSK Canada's income for the 1990 to 1993 taxation years. GSK Canada appealed the reassessment to the Tax Court of Canada.

Decision

The Supreme Court of Canada ruled in favor of GSK Canada. The Court held that the price paid by GSK Canada for the active ingredient was at arm's length because it was the price that would have been paid in comparable circumstances by persons dealing at arm's length. The Court also held that the CRA had not properly considered the circumstances of the transaction, including the fact that GSK Canada was required to purchase the ingredient from the related company as part of a global supply agreement.

Impact

The decision in Canada v. GlaxoSmithKline Inc. has had a significant impact on Canadian tax law. It has clarified the application of the arm's length principle in transfer pricing cases and has provided guidance on the factors that should be considered in determining whether a transaction is at arm's length.