Tax memo: Supreme Court of Canada releases decision in GlaxoSmithKline transfer pricing case

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Memo No. 2012-37

On October 18, 2012, the Supreme Court of Canada (SCC) issued its decision in Her Majesty the Queen v. GlaxoSmithKline Inc. The SCC’s decision generally favoured the taxpayer although final resolution was not realized with today’s decision.

This being the first transfer pricing case decided by the SCC, the decision will no doubt have far-reaching effects on how the Canadian transfer pricing legislation is interpreted and applied.


Between 1990 and 1993, GlaxoSmithKline Inc. (GSK Canada) purchased ranitidine, the active ingredient in the anti-ulcer drug under the brand name Zantac, from Adechsa, a Switzerland-based related party. A licence agreement conferred rights and benefits to GSK Canada. A supply agreement set the terms and price for the supply of ranitidine. The combined effect of the licence and supply agreements allowed GSK Canada to purchase ranitidine, and manufacture and market the final product under the trademark Zantac.

The Canada Revenue Agency (CRA) reassessed GSK Canada on the basis that the price paid for ranitidine was greater than the amount that would have been paid in arm’s length circumstances.

The case was heard by both the Tax Court of Canada (TCC), which decided in favour of the CRA, and the Federal Court of Appeal (FCA), which set aside the decision and returned the case to the TCC for reconsideration. Both parties appealed.

Issues on appeal

The main issue for the SCC was whether it was appropriate for the TCC to apply a transaction-by-transaction approach to determine an appropriate arm’s length price for ranitidine without consideration of the overall business realities to GSK Canada, including the rights and benefits available under the licence agreement.