Case Law Details

Case Name : Majesty of Queen Vs Glaxosmithkline Inc. (Supreme Court of Canada)
Appeal Number : 18/10/2012
Date of Judgement/Order :
Related Assessment Year :

CA Rahul Chillal

Recently on 18th October 2012, The Supreme Court of Canada gave its decision on the case of Majesty of Queen vs Glaxosmithkline Inc. Many Transfer Pricing Professionals had keen eye on this case as it involved huge stakes & would also serve as Benchmark cases for other Transfer Pricing Cases in future. Before looking at the case lets see its development.



 Glaxo Smithkline Inc (GSK) A Canandian Distributor of the Drug Zantac paid around $1512 – 1652/kg for using an ingredient in the preparation of Zantac Drug. This ingredient was Ranitidine. But the price of Ranitidine in the market was around $194-304/kg.

The Canadian Revenue Agency (CRA) had added approx. $51 million as they found the transfer price through CUP (Comparable Uncontrolled Price) Method.

The GSK went to Tax Court of Canada (TCC) against this & court ordered that the price paid by Adechsa was not as per Arms Length Price & the highest price paid by the Pharmaceutical companies was accepted as ALP. It also said that the most preferred method is the CUP method in this case.


The GSK had appealed the decision of the court to the Federal Court of Appeal (FCA) & now the FCA has rejected the given verdict that the Price as set by GSK is the ALP. It relied on the fact that the Licence Agreement was relevant to determining the ALP.

  • The Supreme Court of Canada (SCC) held that the economic & business reality of the transaction should be considered in setting Transfer Price.
  • To market and sell Zantac, Glaxo Canada was required under the license agreement to purchase ranitidine only from approved suppliers, such as Swissco. Glaxo Canada could not have purchased ranitidine from generic suppliers without violating the license agreement and losing its rights to sell not only Zantac but also a host of other patented and trademarked products belonging to the Glaxo corporate group.
  • Transfer Pricing is not a exact science some leeway must be allowed in the determination of the reasonable amount.
  • Glaxo’s argument  was that it was legitimate for Glaxo Canada to pay more than a generic company because the subsidiary was getting other benefits from the global company, including access to a range of patented drugs, and the know-how required to get approvals for drug products, and to make and sell them.

The SCC referred the matter back to the Tax Court of Canada (TCC) to determine the appropriate Transfer Price. It also stated that the OECD Transfer Pricing Guidelines are not controlling as if they were Statue of Canada but are interpretative aids.


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