Contract analysis

From: Leila Nazari <lnazari@calderwoodharkness.com> To: Ingrid Svensson <isvensson@caldwellpryce.com> Cc: Robert Jansen <rjansen@calderwoodharkness.com> Date: Fri, 08 Mar 2024 02:17:00 -0000 Subject: Lumos / Meridian EMEA Reseller Program — Transfer Pricing Coordination [1008-00010]

I hope this email finds you well. I am the lead associate at Calderwood & Harkness LLP working on the Lumos Analytics Inc. EMEA channel reseller program agreement with Meridian Data Solutions GmbH, under the supervision of Howard Bellamy, the responsible partner on the matter. I am writing to coordinate the transfer pricing analysis in connection with the reseller agreement and to confirm alignment on timing for the

By way of brief background, Lumos Analytics Inc. (a Delaware C-Corp headquartered in Palo Alto, CA) is entering into a Channel Reseller Program Agreement with Meridian Data Solutions GmbH (a GmbH registered in München, Germany) for the non-exclusive resale of Lumos Prism™ SaaS subscriptions across the EMEA Territory. The key commercial terms are as follows:

- **Total Contract Value:** $30,000,000 over a 5-year initial term (April 1, 2024 – March 31, 2029) - **Reseller discount:** 30% off Lumos's published EMEA list prices - **Minimum Annual Commitment (MAC) Schedule:** - Year 1 (2024–25): $4,500,000 - Year 2 (2025–26): $5,400,000 - Year 3 (2026–27): $6,300,000 - Year 4 (2027–28): $6,900,000 - Year 5 (2028–29): $6,900,000 - **Total:** $30,000,000

**Transfer Pricing Analysis — Specific Requests**

I have several specific items I would appreciate your team addressing in the transfer pricing memorandum:

1. **CUP Method Confirmation.** Could you please confirm that the Comparable Uncontrolled Price (CUP) method supports the arm's-length nature of the 30% reseller discount? The pricing terms have been structured to be consistent with the OECD Transfer Pricing Guidelines, and we would like Caldwell & Pryce to verify that comparable EMEA SaaS distribution arrangements support the 30% discount as falling within an arm's-

2. **Benchmarking Data.** Has Caldwell & Pryce identified sufficient comparable uncontrolled transactions involving EMEA SaaS/technology channel distribution to support the CUP analysis? If so, are any adjustments to the comparables needed to account for differences in functional profiles, risk allocations, or other relevant factors?

3. **MAC Ramp Structure.** The escalating MAC schedule contemplates Year 1 as a ramp year at $4,500,000, increasing through Year 4 at $6,900,000, and then holding flat in Year 5. Does this ramp structure raise any transfer pricing considerations, or is it consistent with arm's-length behavior observed in comparable distributor arrangements?

4. **Meridian's Entity Status and Sub-Distributors.** Meridian is a German GmbH registered at Amtsgericht München (HRB 274581). Meridian's sub-distributors include Meridian Data Solutions UK Ltd (registered in England & Wales) and Meridian Data Solutions SARL (registered in France). Do the sub-distributor arrangements require any separate transfer pricing analysis, or does the master reseller discount adequately cove

5. **Documentation Requirements.** Given the cross-border nature of payments flowing from Germany to the U.S., please ensure the transfer pricing memorandum addresses documentation requirements under both U.S. regulations (Section 482) and German transfer pricing documentation rules (including any applicable requirements under the GAufzV and the German Foreign Tax Act).

All amounts under the agreement are denominated in USD, and Meridian bears the FX risk. I would appreciate your assessment of whether the FX risk allocation has any bearing on the arm's-length analysis and, if so, how it should be addressed in the memorandum.

**Coordination with Tax Structuring Work**

Robert Jansen and I are separately preparing a tax structuring memorandum addressing withholding tax implications for cross-border payments (Germany to U.S.) under the U.S.-Germany income tax treaty, as well as VAT treatment. If any findings from your transfer pricing analysis bear on the withholding tax or VAT analysis—for example, if the characterization of payments or the functional analysis has implications for t

The parties are targeting execution of all agreements on or around March 22, 2024, with an effective date of April 1, 2024. We circulated the revised draft of the reseller agreement to Meridian's counsel (Kessler Hartmann Rechtsanwälte) on March 4, 2024, and we expect a second markup from the counterparty shortly. Ideally, the transfer pricing memorandum should be finalized before the final-form agreement is locked.

With that in mind, could you please plan to deliver the finalized transfer pricing memorandum by **Friday, March 15, 2024**? This will allow sufficient time for our team to review and reference the memorandum in the transaction closing deliverables.

Please confirm receipt of this email and let me know whether the March 15 delivery date is achievable. If it would be helpful, I am happy to schedule a call with you, Robert, and me to discuss any open items or questions your team may have as you finalize the analysis.

Thank you very much for your continued collaboration on this matter. Please do not hesitate to reach out if you need any additional information from our side.

**Leila Nazari** Associate, Tax Calderwood & Harkness LLP 801 South Figueroa Street, Suite 4200 Los Angeles, CA 90017 T: +1 (213) 555-4178 E: lnazari@calderwoodharkness.com

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