GlaxoSmithKline prevailed in a tax challenge from the Canadian government. The U.K.-based drugmaker won backing from the country’s highest court, in a much-watched battle over using transfer pricing to cut its tax bill.
At issue in the case were active-ingredient purchases made by Glaxo’s Canadian subsidiary between 1990 and 1993. The unit bought an API from a Swiss affiliate for 10 times the cost and 5 times the maximum paid by two other generics makers, Reuters reports. Canada’s Supreme Court ruled that the pricing was appropriate because of other benefits conferred by the Canadian unit’s licensing deal with GSK.
Transfer pricing has come under scrutiny in recent years, along with other methods big companies use to minimize their tax liabilities. Multinationals have been using intracompany billing to shift profits from one taxing jurisdiction to another for years. It’s legal, but as Reuters points out, taxing authorities often go after companies with aggressive pricing strategies.
Click here to read the Reuters news article.