The Achilles’ Heel of the Arm’s Length Principle and the Canadian GlaxoSmithKline Case - Intertax View The Achilles’ Heel of the Arm’s Length Principle and the Canadian GlaxoSmithKline Case by Jean-Pierre Vidal - Intertax The Achilles’ Heel of the Arm’s Length Principle and the Canadian GlaxoSmithKline Case Jean-Pierre Vidal 37 10

By definition, a multinational earns income in more than one country. Two approaches can be used to establish the tax payable to each country: the separate accounting approach and the formula apportionment approach. Usually, it is assumed that the separate accounting approach is the obvious choice. However, as illustrated by a recent Canadian tax court case, this method has an Achilles’ heel. Since uniqueness and market imperfections are at the heart of the economic profit made by multinationals, it would only seem natural that the comparables necessary to calculate the arm’s length prices do not and cannot exist. These facts plead against the separate accounting approach.

Intertax