Canada´s Tax Court Decides First Transfer Pricing Case

In a lengthy judgment released on May 30, 2008, the Tax Court of Canada in GlaxoSmithKline Inc. v. The Queen considered whether the price paid by the taxpayer to a related Swiss company for ranitidine, the active pharmaceutical ingredient in ulcer medication sold in Canada by the taxpayer under the brand name Zantac, was "reasonable in the circumstances" under subsection 69(2) of the Income Tax Act (Canada), a predecessor provision to the current transfer pricing rules in section 247 of the Act. The Court endorsed the ordering of methods set out in the OECD's Transfer Pricing Guidelines, concluding that the comparable uncontrolled price ("CUP") method was the preferred method for determining a reasonable price for the taxpayer's purchase of ranitidine, unless there was no comparable transaction.