Transfer pricing issues arise when entities of a multinational corporation resident in different jurisdictions transfer property or provide services to one another. During the week of October 15, 2012, the Supreme Court of Canada decided that any transfer pricing reassessment under former s. 69(2) must necessarily involve a consideration of all circumstances of the Canadian taxpayer that are relevant to the price paid to the non-resident supplier (GlaxoSmithKline Inc. v. The Queen; see http://www.thor.ca/wp-content/uploads/2012/10/2012-SCC-52.pdf for link). Such circumstances (which arm’s length parties could reasonably face) would include all agreements that may confer rights and benefits in addition to the direct purchase of property – provided those agreements are linked to the purchasing agreement. In short, the facts involved a Canadian subsidiary engaged in the secondary manufacturing and marketing of Zantac (a brand name anti-ulcer drug) under both a License Agreement and a Supply Agreement with non-resident group companies. The Tax Court of Canada refused to even consider the License Agreement when it determined that the transfer price for the active ingredient acquired under the Supply Agreement should simply equal what other companies paid for the generic version of that drug. The Supreme Court said this refusal was an error of law, and remitted the matter back to the Tax Court for a redetermination of an appropriate transfer price for the active ingredient. Further, the Supreme Court said the appropriate transfer price must fall within “a reasonable range” having regard to (1) the License Agreement and the Supply Agreement, and (2) the different functions (and resources and risks inherent in each) undertaken by the respective companies in the group. In the end, the exercise must not result in a misallocation of earnings among the group having reasonable regard to these considerations.