Thank you, Mr. Chair.
Mr. Cockfield, I would like to ask you a question about transfer prices involving corporations.
Last fall, the Supreme Court heard the case of Canada versus GlaxoSmithKline Inc. The Department of National Revenue alleged that the company had abused the practice of transfer prices between companies. Glaxo Canada was purchasing ranitidine, the active ingredient in the drug called Zantac, from its Swiss subsidiary. The prices varied between $1,500 and $1,650 per kilogram. At the same time, generic drug companies were purchasing the same product on the international market at prices varying between $200 and $300.
GlaxoSmithKline Inc. won its case before the Supreme Court on the grounds that the difference between the price paid on the international market by generic drug companies and the price paid by Glaxo Canada to its Swiss subsidiary was justified because of the intellectual property that led to the launch of Zantac and the right to use of Zantac.
In its ruling, the Supreme Court stated the following:
Section 69(2) requires the court to determine whether the transfer price was greater than the amount that would have been reasonable in the circumstances, had the parties been dealing at arm's length. If transactions other than the purchasing transaction are relevant in determining this question, they must not be ignored. Section 69(2) does not, itself, offer guidance as to how to determine the “reasonable amount” that would have been payable had the parties been dealing at arm's length.
In your opinion, is this simply a problem of defining what this famous competitive pricing is? If not, is it the method itself that is ill-adapted, as Mr. David Rosenbloom, a witness who appeared before this committee, stated last week?