Law Times

PAGE 12 Exclusive licence for Zantac justifies higher price: Glaxo FOCUS Continued from page 10 Agency. It said Glaxo was inflat- ing its transfer price for ranitidine. The government reassessed Glaxo $51 million in unpaid taxes. Glaxo appealed to the Tax Court of Canada. It argued it was unfair to compare its business with generic drug producers whose products don't command the premium price that Zantac does. The company says the li- censing arrangements between the subsidiary and its parent, which allowed the Canadian arm to exclusively market Zantac in this country, legitimized the higher price for the raw material. The tax court dismissed the appeal, but the Federal Court of Appeal allowed it. It said the trial judge was wrong to disregard the different circumstances facing the Glaxo subsidiary in comparing its price for raniti- dine versus the generic one. The Canada Revenue Agency says the court should consider only the absolute price of the ra- nitidine, the generic one. Glaxo and the Federal Court of Appeal say that ignores basic business realities. Even an arm' porter, Glaxo says, would have paid the same higher price for ranitidine in return for the exclu- sive licensing deal for Zantac. "The presumption in Glaxo by s-length im- When it comes to IP in Canada, We're Well Read Ridout & Maybee LLP: Editors of the Canadian Patent Reporter it all starts somewhere www.ridoutmaybee.com bin. "And they keep arguing: what would an arm' " says To- for ranitidine's absolute value? I think that's a very dangerous thing s-length person pay because outside of car engines and other goods, there aren't always established prices for everything. There' where with all the prices listed." What happens, asks Tobin, s no textbook sitting some- when a foreign company builds a hospital in Canada? What price should its subsidiary pay the foreign parent for technical design services? "Tax auditors will encounter problems as they get more and more audits going on involving non-commodity services where prices are oſten secret and it' to figure out the differences." Another problem with the Canada Revenue Agency's s hard approach, says Adrienne Wood- yard, a tax lawyer at Davis LLP in Toronto who observed the Su- preme Court hearing, is that the government chose not to fight Glaxo on the amount of the roy- alties paid to its parent. Untitled-1 1 12-01-23 9:05 AM August 6, 2012 • LAw times Revenue Canada is that all goods and services have some absolute commodity-like value, A problem with the government's approach is that it chose not to fight GlaxoSmithKline on the amount of the royalties paid to its parent, says Adrienne Woodyard. tice Beverley McLachlin asked whether Glaxo had bundled some of its royalty payments owed un- der its licensing agreement into its transfer price for the ranitidine and thereby avoided withholding tax on the royalty fees. The Canada Revenue Agency During the hearing, Chief Jus- never accused Glaxo of making mischief with its royalties. But Woodyard says the court may address this question in its rul- ing even though it' for the Crown. " s not an issue referred back to the Tax Court for a determination of what a reason- able price for ranitidine would be, then the tax court will have to confront the question whether Glaxo paid more under the supply agreement in order to pay less un- der the licensing agreement than the right to sell under the Zantac name was worth." Whatever the Supreme And if the matter is ultimately ACCESS THE LATEST IN CASE LAW INTERPRETING CANADA'S PREVALENT BUSINESS LIABILITY POLICY ANNOTATED COMMERCIAL GENERAL LIABILITY POLICY MARCUS B. SNOWDEN AND MARK G. LICHTY Get practical and complete analysis of the IBC Form 2100 CGL "occurrence" policy, on a clause-by-clause basis. 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