Supreme Court of Canada Establishes Important Principles in Transfer Pricing

The Supreme Court of Canada recently released its judgment in The Queen v Glaxo Smith Kline Inc., (Glaxo), which is the Court's first pronouncement on Canada's transfer pricing rules. Transfer pricing involves the allocation of profits in cross-border transactions among related parties and it is a contentious issue that can result in double taxation for taxpayers as governments in different jurisdictions seek to tax the same income. Transfer pricing is a high priority enforcement area for the Canada Revenue Agency and revenue authorities in other countries. Although the Glaxo case involved the interpretation of an earlier iteration of Canada's transfer pricing rules, the Supreme Court's reasons establish some key principles that should have application to Canada's current transfer pricing regime and the case is therefore an important one for Canadian multi-nationals. Overall, the decision is a positive one for Canadian businesses; however, the Supreme Court has sent a clear signal that allocation of transfer prices among related parties participating in multiple transactions, such as the licence of a trademark and the supply of goods and/or services, will be carefully scrutinized. Multiple transaction arrangements are common amongst multi-national enterprises large and small and, in light of the Glaxo case, businesses should revisit their transfer pricing documentation and legal agreements to mitigate the risk of reassessment and penalties by tax and customs authorities. The full article, written by Claire Kennedy, Martin Kratz and Darrel Pearson, can be found on the full Bennett Jones website.