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The recent landmark ruling by the Canadian Supreme Court on transfer pricing in the pharma sector is likely to have far reaching implications on the Indian pharma space too.
The court’sjudgment overruled the order of the tax court and has stated that businessmodels, Intellectual Property Rights (IPR) and other rights need to be considered to determine transfer price. This is an interesting twist as back home the Income Tax Appellate Tribunal (ITAT) had relied heavily on the Canadian tax court ruling, which resulted in pharma MNC coming under the tax ambit in India.
The Canadian Supreme Court’s judgment has also adopted a test to determine transfer price of branded drugs and has rejected transaction by transaction approach.
However, ITAT’s view on transfer pricing stated that the MNC will have to compare price with generic makers and price of ingredients for manufacturing also needs to be compared.
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