Disputes in transfer pricing never go away easily and when they linger too long the aftertaste looms larger. And so it is in the case involving the pharma giant, GlaxoSmithKline (GSK).
The matter of Canada v. GlaxoSmithKline Inc., 2012 SCC 52
was heard in January this year and now the judgment is out. After a string of arguments and counter arguments, the Supreme Court of Canada has held that “the reasonable amount” payable by the Canadian subsidiary was not only for the Ranitidine (an ingredient in the production of the drug, Zantac) that it purchased from a related company, but also for a bundle of rights and benefits under the licence agreement it had with the group. The matter has been sent back to the Tax Court for redetermination of the price. See our earlier blog “Arm’s length price in transfer pricing – A Canadian view”.
The decision throws up another question. Should the payment made by the subsidiary be apportioned between payment for the Ranitidine and payment for the licence resulting in the group being liable for Canadian tax on the licence payment.
This invariably leads to the proper method to be used in determining the price for certain intangibles such as the use of intellectual property.
In June this year, the OECD released a discussion draft aimed at replacing the current Chapter VI of the Transfer Pricing Guidelines with a revised version. 22 examples given in the Annex illustrate the complexity involved in determining the price payable for intangibles.
Have we heard the last of the intangibles in transfer pricing?