Classic Transfer Pricing Case: GlaxoSmithKline Inc. v. The Queen 2008

Par Robert Robillard - 28 mai 2014

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In GlaxoSmithKline Inc. v. The Queen, 2008 TCC 324 (CanLII) :

« The appeals from the assessments made under the Income Tax Actfor the 1990, 1991, 1992 and 1993 taxation years and assessments made under Part XIII of the Act with respect to the alleged failure of the appellant to withhold tax on dividends deemed to be paid to a non-resident shareholder in 1990, 1991, 1991 and 1993 are allowed and the matters are referred back to the Minister of National Revenue for reconsideration and reassessments only to decrease the excess amounts (as described in the reasons for judgment) paid by the appellant for ranitidine by $25 per kilogram and to adjust the amounts of withholding tax accordingly. »



[3] Ranitidine is the active pharmaceutical ingredient (« API ») in a drug that was marketed by the appellant in Canada under the brand name Zantac. The drug was prescribed to relieve stomach ulcers without the need for surgery. Before the discovery of ranitidine the most successful API used to relieve ulcers was cimetidine. Cimetidine was marketed by a competitor of the appellant under the brand name Tagamet. Ranitidine was discovered by the appellant’s parent company in 1976 and was approved for sale in Canada in 1981. Zantac was launched by the appellant in 1982.

[4] During the period under appeal other pharmaceutical companies (« generic companies ») were selling generic versions of Zantac in Canada. These companies purchased ranitidine for much less than the appellant. According to the Minister, a reasonable amount for the appellant to have paid for ranitidine was the price paid by these other companies.

[5] Glaxo Canada paid Adechsa S.A., a person with whom it did not deal at arm’s length, the following amounts for ranitidine during the years in appeal:

Taxation Years Price per kilogram
1990 $1,512
1991 $1,575
1992 $1,635
1993 $1,651
[6] At the same time the generic companies in Canada paid the following amounts to their suppliers of ranitidine:

Taxation Years Price per kilogram
1990 $292 – $304
1991 $244 – $289
1992 $220 – $253
1993 $194 – $248
[7] In making the Part I assessments the Minister did not permit the appellant, in computing its income for the years in appeal, to deduct the amounts by which the purchase prices paid to Adechsa for a kilogram of ranitidine exceeded the highest price paid by the generic companies for a kilogram of ranitidine at the appropriate time. »

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

GlaxoSmithKline Inc. v. The Queen, 2008 TCC 324 (CanLII)

GlaxoSmithKline Inc. c. La Reine, 2008 CCI 324 (CanLII)

Robert Robillard, CPA, CGA, MBA, M.Sc. Econ.
Transfer Pricing Chief Economist, RBRT Inc.
514-742-8086; robert.robillard « at » localhost

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.

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