August 06, 2012
Does every good and service on the planet have an absolute value? Perhaps there’s a celestial textbook in the heavens where businesses and tax collectors can go to find out the one true price of just about everything. That’s John Tobin’s somewhat tongue-in-cheek view of the Canada Revenue Agency’s approach to its 20-year tussle with pharmaceutical giant GlaxoSmithKline Inc. that’s now awaiting a ruling from the Supreme Court of Canada.
Tobin is one of dozens of tax practitioners across Canada who are closely watching what the Supreme Court will say, perhaps this summer or in the fall, in its first interpretation of Ottawa’s transfer-pricing rules. Transfer pricing requires Canadian subsidiaries of foreign companies to declare for tax purposes how much they pay to their parent for the products they import for sale. By inflating the price paid for the imports, a subsidiary can lower its Canadian profits and shift money outside the country.
"That evil, if you will, has been around for a long time," says John. "But in the last eight to 10 years, it has become a very large focus to what the Canada Revenue Agency is doing. They’ve beefed up their auditors and they’re quite concerned that Canada is losing its fair share of tax revenue by people mis-pricing what they’re doing between their related parties."
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