Citation: 2005TCC436
Date: 20050718
Docket: 98-712(IT)G
BETWEEN:
GLAXOSMITHKLINE INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Motion heard by telephone conference on July 6, 2005
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By: The Honourable Justice
D.W. Beaubier
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Appearances:
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Counsel for the Appellant:
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Pierre Barsalou,
Sebastien Rheault and Benjamin Tomlin
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Counsel for the Respondent:
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Naomi Goldstein, Karen
Janke and
Myra Yuzak
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Representing Apotex Inc.
(“Apotex”):
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Gordon Fahner
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Representing Novopharm
Limited (“Novopharm”):
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William Mayo
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____________________________________________________________________
AMENDED REASONS FOR ORDER AND ORDER
[1] Upon reviewing the
motion dated June 24, 2005, the affidavit of Travis Chalmers dated June 24, 2005 in support of
the motion, the affidavits of Marla McKitrick dated June 25, 2005 for the Respondent, and
the examination of Travis Chalmers on his affidavit, the Court file, and upon
hearing counsel in this matter;
[2] This Notice of
Motion by the Appellant is, in cursory summary, for:
(a) An
order for the Respondent to produce documents of Apotex Inc. (“Apotex”) or
Novopharm Limited (“Novopharm”) that might be used at trial, including
financial statements from 1989 to 1995 and relating to rebates granted to
pharmacists and drugstores from 1989 to 1993.
(b) An
order requiring Dr. Sherman of Apotex to be re-examined with copies of
documents relied upon by Mr. Fahner to prepare Exhibit A-3 in the examination of
July 23, 2003; Apotex documents relevant to Tom Burkimsher’s reserved responses
of May 4,
2005; and
correspondence and documents exchanged with the Respondent since 1994.
(c) A
similar order respect Leslie Dan of Novopharm.
(d) An order for further examination of
the Respondent’s representative, Tom Burkimsher in relation to documents
concerning rebates and other forms of discounts granted by Apotex and Novopharm
to Dial Drug Stores Ltd. from 1989 to 1993.
Or
in Paragraph [4] –
“
[4] IN THE ALTERNATIVE, THIS MOTION IS FOR an order that the Respondent cannot
rely on the transactions of Apotex and Novopharm to support the reassessments
under appeal, pursuant to section 12 of the Tax Court of Canada Act,
Rules 65, 91 and 110 or the inherint powers of this Court to prevent an abuse
of its process.”
[3] The issues
described in the Amended Notice of Appeal and the Reply in this appeal they are
quite specific. In paragraphs 22 and 23 of the Amended Notice of Appeal they
are:
22. The first issue
to be determined is whether the price at which the Appellant purchased
ranitidine during the 1990, 1991, 1992 and 1993 taxation years was greater than
the amount which would have been reasonable in the circumstances, had Adechsa
and the Appellant been dealing at arm’s length.
23. The second issue
to be determined is whether the Appellant was required to withhold and remit
tax in respect of a portion of that price on the basis that the portion
represented a benefit conferred on a shareholder.
Paragraph 15 of the Reply agrees
and is more specific; it reads:
15. He agrees with the statement of the
issues in paragraphs 22 and 23 the Notice of Appeal. He agrees with the statement of issue in
paragraph 22 of the Amended Notice of Appeal, but says that with respect to the
statement of issue in paragraph 23 of the Amended Notice of Appeal, that issue
is more precisely defined as follows:
a) did the
Respondent correctly assess the Appellant for tax under Part XIII of the Income
Tax Act for amounts deemed to have been paid as dividends by a corporation
resident in Canada to Glaxo Group Limited, the non –resident shareholder of the
Appellant, within the meaning of subsections 56(2) and 214(3) of the Income
Tax Act.
b) alternatively,
is the Appellant, pursuant to paragraphs 246(b) of the Income Tax Act,
deemed to have made payments to a non-resident person to which Part XIII
applies;
c) alternatively,
is the Appellant, pursuant to paragraphs 212(1)(a) or 212(1)(d) required to
remit withholding tax on amounts considered to be, or in lieu of, management or
administration fees or charges and/or royalties.
[4] In other words,
insofar as the Appellant’s business operations are concerned, the question is
whether the Appellant purchased ranitidine at a reasonable price from Adechsa
from 1990 to 1993. Ranitidine is a substance to be used by the Appellant in the
manufacture of a prescription drug, as stated by Bowie, J. in his Reasons for
Order dated October 8, 2002.
[5] The parties have
agreed in their pleadings that the issue is ranitidine’s purchase price, and
the evidence is that the purchases in question are for the purpose of
manufacturing. It is not the profits or losses made on that purchase price.
[6] Bowie, J. stated on October 8, 2002
that Dr. Sherman has been of no more than minimal assistance in the Appellant’s
examinations. The Appellant’s counsel has already examined the proposed
witnesses. Moreover, Bowie, J.’s Reasons for Order related to Apotex’s purchases
of ranitidine and, except for Mr. Burkimsher, the examinations are of
persons representing third parties. All of this is part of the continuum of an
appeal that began in 1998 respecting the Appellant’s 1989 to 1993
taxation years.
[7] Based on the material filed to date, the Respondent’s and third parties’ witnesses know and
have carried out their legal duties in preparing for and carrying out the examinations
by Appellant’s counsel and providing documents to that counsel and to the
Court. On that basis, they have now provided the Appellant with all the information
they have respecting matters in issue in this appeal.
[8] In argument, Appellant’s counsel stated that after the
reassessment was levied, the Respondent proposed a “Cost – Plus method” as an
alternative basis for the reassessment. Respondent proposes that a “reasonable
profit” can be calculated by taking the cost of primary manufacturer and
subtracting it from the Comparable Uncontrolled Prices paid by Apotex and
Novopharm. Respondent’s counsel did not deny this; rather, she stated that the
onus respecting this method would be on the Respondent. But none of this
relates to sales by Apotex and Novopharm.
[9] The sales and information into which further
examination is sought are not related to the audit and did not form part of the
basis for assumptions. CRA relied on the prices that Novopharm and Apotex paid
for ranitidine as constituting the comparable uncontrolled manufacturers
purchase prices for ranitidine. The Appellant’s proposed inquiries are into
their sales of ranitidine products to the retail pharmaceutical trade, the
discounts they granted and the profits they made on those sales. These are not
the issues raised by the pleadings and they are not a part of the Respondent’s
assessment process in this case.
[10] With respect to the third parties, the Appellant
proposes to examine, having reference to Rule 99:
1.
Appellant’s
counsel has already examined these people.
2.
Any further
search for documents by the third parties would result in unreasonable expense
to them.
3.
Because the
Appellant is seeking evidence respecting their sales profits and discounts to
the retail trade, the proposed evidence is not relevant to the issue in dispute
– the purchase price of ranitidine for the purpose of manufacturing drugs.
Rather, the purpose appears to be a fishing expedition into the financial sales
practises of drug companies such as Apotex and Novopharm to retail pharmacies.
[11] For this reason, the Court orders:
(a) That the
Respondent cannot use or rely on the sales transactions of Apotex or Novopharm
to support the reassessments under appeal, since they are irrelevant to the
issue in dispute.
And
orders:
(b) That the Respondent cannot
introduce any documents, redacted or unredacted or amended to any form of unredaction,
or submit evidence of or relating to Apotex and Novopharm at the hearing of
this appeal in addition to what has already been provided to the Appellant at
the date of the last examination of any person representing them by the
Appellant’s counsel in examinations or contained in the Respondent’s List of
Documents to this date.
[12] Costs of this motion are in the cause.
Signed at Saskatoon, Saskatchewan, this 18th
day of July 2005.
"D.W. Beaubier"
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