GlaxoSmithKline prevails at Federal Court of Appeal, but saga continues In a July 26, 2010, decision, Canada’s Federal Court of Appeal (FCA) found that the Tax Court of Canada (TCC) erred in its interpretation of former subsection 69(2) of the Canadian Income Tax Act (ITA), which involved an application of the comparable uncontrolled price (CUP) method. The FCA sent back to the TCC the issue of the determination of a “reasonable price” for the active ingredient of Zantac. The FCA decision reaffirms a view held by most taxpayers and advisors that the arm’s length price of individual transactions should be determined with due consideration of all the other relevant intercompany transactions within the related group. This also applies to the use of the CUP method, where comparability adjustments should not just capture product differences, but market and business circumstance (such as the use of intangibles) that parties would consider in arm’s length dealings. Background The TCC on May 30, 2008, ruled in favor of the Canada Revenue Agency (CRA) in a long-running dispute with GlaxoSmithKline Inc. (GSK), the Canadian distributor of the patented anti-ulcer drug Zantac. The dispute focused on the transfer price paid for ranitidine, the active ingredient in Zantac, during the 1990 to 1993 taxation years. The CRA’s adjustment increased GSK’s taxable income by $51 million. The decision was made under the transfer pricing rules of section 69 of the ITA, the predecessor to the current rules in section 247. Under the former section, the test was whether the price paid would have been “reasonable in the circumstances” if the nonresident person and the taxpayer had been dealing at arm’s length. The TCC found that the price paid for ranitidine to a related Swiss company was not reasonable in the circumstances, and that a reasonable price was the amount paid by a group of selected generic pharmaceutical companies for a chemically equivalent product, plus a minor adjustment for additional granulation. The decision hinged on the assertion by the TCC judge that only the transaction under review, and not any other intercompany transaction, should be considered in the determination of whether the price paid by GSK for ranitidine was “reasonable in the circumstances.” In particular, the TCC excluded from consideration the license agreement between GSK and its U.K. parent, which provided GSK with the right to use the Zantac brand and other intangibles in its distribution activities. The ability of GSK to use these intangibles contributed to the price premium of Zantac over competing generic drugs. The TCC judge’s position was supported by relying on the Supreme Court of Canada’s decision in Singleton v. Canada,  2 SCR 1046. Overview of FCA’s decision The FCA found that the TCC judge erred in two respects. First, the TCC judge concluded on the basis of Singleton that other intercompany transactions, namely the license agreement with GSK’s UK parent, were of no relevance in the determination of a reasonable price under subsection 69(2). However, the FCA found no link between the provision in the ITA that was the subject of Singleton (paragraph 20(1)(c)(i)) and the provision relevant to this case (subsection 69(2)). Second, and similar to the above, the FCA found that the TCC judge erred in his interpretation of the “reasonable” test under subsection 69(2). According to the FCA, the test should have considered “all relevant circumstances which an arm’s length purchaser would have had to consider,” particularly GSK’s license agreement with its U.K. parent. In supporting this finding, the FCA relied on the “reasonable business person” standard found in Gabco Limited v. Minister of National Revenue (1968), 68 D.T.C. 5210. As a result, and because of the TCC’s greater exposure to the case facts, the FCA sent the case back to the TCC to redetermine the reasonable price under the correct test.
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Impact of the FCA’s decision Although the “reasonable in the circumstances” test has since been replaced, through section 247 of the ITA, with an “arm’s length” test, the decision by the FCA involves an issue common to both former subsection 69(2) and section 247 of the ITA. The FCA decision reaffirms a view held by most taxpayers and advisors that the arm’s length price of individual transactions should be determined with due consideration of all the other relevant intercompany transactions within the related group. This also applies to the use of the CUP method, where comparability adjustments should not only capture product differences, but market and business circumstance (such as the use of intangibles) that parties would consider in arm’s length dealings. It remains to be seen whether the CRA will appeal the decision to the Supreme Court of Canada, or if not, how the TCC judge will undertake the transfer pricing analysis under this revised test. Regardless, the next debate will undoubtedly have further significant implications on how transfer pricing methods should be applied. — Norma Kraay (Toronto)
Hernan Allik (Toronto) Senior Manager Deloitte Canada [email protected]
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Copyright 2010, Deloitte Global Services Limited.
XI Congreso Galego de Estat´ıstica e Investigaci´Dependent Functional Regression Models for detecting influenza epidemicsManuel Oviedo de la Fuente1, Manuel Febrero-Bande1 and M. Pilar Mu˜1Department of Statistics and Operations Research, Universidade de Santiago de Compostela2Department of Statistics and Operations Research, Universitat Politcnica de CatalunyaThe objective of this work is
ESTATUTOS DEL CLUB DE LEONES GUATEMALA SAN CRISTOBAL DISTRITO D-3 CAPITULO I. ASPECTOS GENERALES. ARTICULO 1º. Creación. Se organiza el Club de Leones “Guatemala San Cristóbal”, al cual se le denominara Club de Leones Guatemala San Cristóbal. Afiliado a la Asociación Internacional de Clubes de Leones y los asociados serán llamados Leones. ARTICULO 2º. Domicil