Posted on Monday May 7, 2012
As illustrated in the Glaxo court case, the Canada Revenue Agency reasessed Glaxo Canada for its 1990-1993 tax years. This was done, because according to the Canada Revenue agency Glaxo paid a sister Swiss company in Europe C$ 1,512-C$1,651 per kilogram for randitidine, a component in ulcer drug Zantac while other generic drug manufacturers paid C$194-304 per kilogram ranitidine.
Switzerland uses a significantly lower corporate tax rate compared to the tax rate used in Canada. Having more profit in low tax-rate countries and less in high tax-rate countries creates a higher profit for the holding company. However, Glaxo canada was not allowed to distribute the high profitable drug Zantac in Canada if it did not order the randitidine from the Swiss sister company at the fixed given price.
Keeping this in mind, was it a reasonable arm's-length price Glaxo Canada paid for the randitidine?
For more information, please read the court case on GlaxoSmithKline v. Canada Revenue Agency
I think it is a fair price given the fact that Glaxo Canada can now sell the Zantac drug. They still have,I believe, a 60% margin on the product. Any other company would probably had accepted the deal as well.
Posted by Guyneau de Zeeuw op Monday 7 May 2012
