The taxpayer purchased the active pharmaceutical ingredient of a drug that was marketed by it in Canada from an affiliated non-resident corporation for approximately five times the amount that was paid by Canadian generic drug manufacturers for the (chemically identical) ingredient.
In finding that the taxpayer had conferred a taxable benefit on its U.K. parent as a result of paying in excess of a reasonable price for the purchased ingredient (with a reasonable price being based on the highest prices paid by generic manufacturers for the same ingredient, plus an upward adjustment for the fact that the taxpayer purchased the ingredient in granulated form). Rip A.C.J. rejected submissions of the taxpayer that the U.K. parent did not know that the taxpayer was purchasing the ingredient for more than other companies in Canada were paying, and that there was no benefit to the affiliate because the amount charged by the affiliate to the taxpayer was not substantially in excess of the cost of the ingredients to the affiliate (which, in turn, was based, in part, on costs paid to other group companies).