Contract analysis

I. Purpose and Overview The purpose of this memorandum is to prepare you, Marcus Whitfield, for the IRS Appeals conference currently scheduled for February 28, 2024, at the IRS Appeals Office in Manhattan, New York. This memorandum sets forth the key facts, anticipated questions, recommended responses, messaging themes, ground rules, and logistical details necessary for you to perform your role effectively at the con

II. Conference Logistics Date and Time: Wednesday, February 28, 2024. The conference is expected to begin at 10:00 AM Eastern Time. Location: IRS Appeals Office, Manhattan, New York. The specific street address and suite number will be confirmed by Appeals Officer Castañeda's office and circulated to the team no later than February 26, 2024. Based on prior experience, the Manhattan Appeals Office is located in the fe

III. Role Definition and Ground Rules A. Marcus's Role at the Conference Your role at the Appeals conference is to serve as PPC's business-side witness. Your primary objectives are as follows:

1. Demonstrate PPC's Good Faith. Appeals Officer Castañeda will be evaluating not only the technical merits of PPC's transfer pricing positions but also the Company's overall approach and credibility. Your demeanor, preparation, and willingness to engage substantively with the Appeals Officer's questions will contribute to her assessment of PPC as a cooperative taxpayer that acted in good faith.

2. Establish the Commercial Substance of PBI. One of the IRS examination team's implicit arguments is that PBI lacks sufficient substance to justify its role as the non-Americas principal. Your testimony regarding PBI's operations, personnel, decision-making authority, and commercial activities is critical to rebutting this characterization.

3. Articulate the Business Rationale for the CSA. You should be prepared to explain clearly and concisely why PPC established the CSA with PBI, effective July 1, 2012, and why the structure made sense from a business and operational perspective — not merely from a tax perspective.

4. Explain the Legacy IP Royalty Arrangement. You should be able to describe the terms of the legacy compound license, the 4.5% royalty rate, and the basis for that rate in the comparable uncontrolled transaction analysis.

5. Demonstrate Command of Key Financial Figures. While you are not expected to perform economic analyses at the conference, you should be comfortable with the key financial data points set forth in Section IV below, including PBI's revenue, headcount, cost-sharing ratios, royalty payments, and PCT payment.

6. Defer Appropriately. Where questions concern technical economic methodology (e.g., discount rates, comparable selection, statistical analysis), you should defer to Dr. Vasquez. Where questions concern legal interpretation, regulatory requirements, or penalty analysis, you should defer to me. This division of labor is important both for accuracy and for maintaining the attorney-client privilege over legal strategy

7. Project Credibility and Professionalism. You should maintain a cooperative, professional tone throughout the conference. Appeals conferences are not adversarial in the way that Tax Court proceedings are; the Appeals Officer's role is to evaluate the hazards of litigation and seek a fair resolution. A cooperative demeanor is both appropriate and strategically advantageous. B. Ground Rules for the Conference The fol

1. Do not volunteer information beyond what is asked. Answer questions directly and concisely. If the Appeals Officer asks a narrow question, provide a narrow answer. Do not offer additional context, qualifications, or related information unless specifically asked to elaborate. Volunteering information creates risk — it can open new lines of inquiry, introduce facts that are not helpful to our position, or create inc

2. If you are unsure of an answer, say so. If you are asked a question and you are not certain of the precise answer — whether it concerns a specific date, dollar amount, headcount figure, or factual detail — you should state clearly that you would need to confirm that information and that counsel can follow up in writing. Do not guess. Do not approximate unless you clearly qualify the figure as an approximation. Ina

3. Do not speculate about IRS motives or criticize the examining agents. You should not offer any opinion about why the IRS examination team reached the conclusions it reached, whether the examining agents acted in good faith, or whether you believe the examination was conducted properly. Specifically, do not make any negative or critical comments about Supervisory Revenue Agent Gerald Meskill, Lead Revenue Agent Pat

4. Do not discuss settlement parameters. Under no circumstances should you discuss PPC's settlement authority, target settlement range, willingness to concede on any particular adjustment, or any dollar figure associated with a potential resolution. Settlement discussions are exclusively within my domain as lead counsel. If the Appeals Officer asks you a question that touches on PPC's settlement position, you should

5. Do not reference internal strategy discussions. You must not disclose or reference any internal C&H strategy discussions, the hazards-of-litigation analysis, any settlement authority memorandum, or any other privileged communications between PPC and C&H. These materials are protected by the attorney-client privilege and the attorney work-product doctrine, and any disclosure — even an inadvertent or partial disclos

6. Do not discuss certain third parties or topics. You should not discuss any communications or matters involving Crestfield & Associates (beyond the fact of their engagement for transfer pricing documentation), Ridgeview Capital Management, Hargrove National Bank, or any SEC disclosure considerations. If any of these topics arise, defer to counsel.

7. If asked about FIN 48 reserves or financial statement impact, defer to counsel. Questions about PPC's uncertain tax position reserves under ASC 740-10 (formerly FIN 48), the financial statement impact of the proposed adjustments, or any related financial reporting matters should be redirected to me. These topics implicate privileged analyses and are not appropriate subjects for discussion at the Appeals conference

8. Look to counsel before responding to unexpected questions. If Appeals Officer Castañeda asks a question that you believe falls outside your role, that touches on a sensitive area, or that you are uncertain about, pause and look to me or to Sylvia Hartwell before responding. This pause is natural and expected in an Appeals conference — the Appeals Officer will understand that the taxpayer's representatives coordina

9. Do not commit to any follow-up actions. If the Appeals Officer requests additional documents, information, or analysis during the conference, do not agree to a specific timeline or commitment. I will handle all commitments for follow-up submissions. You may acknowledge that the information exists or can be obtained, but the timing and scope of any submission will be determined by counsel.

IV. Key Facts to Know and Articulate This section sets forth the key facts that you should know thoroughly and be prepared to articulate at the conference. You should be comfortable discussing these facts from memory, though you will have the Appeals Conference Document Binder available for reference if needed. Each subsection below corresponds to a major factual area that may arise during the conference. A. PPC Corp

1. Operational Centralization: PBI was established to serve as the principal for PPC's non-Americas (EMEA and APAC) commercialization activities, providing a single point of accountability for regulatory strategy, commercial planning, pricing, distribution partner management, and supply chain coordination across non-Americas markets.

2. Ireland's Pharmaceutical Infrastructure: Ireland has one of Europe's most established pharmaceutical and biopharmaceutical industries, with a deep pool of experienced regulatory, medical affairs, and commercial talent. PPC already had a significant manufacturing presence in Ireland through PMI in Cork, and the addition of PBI's commercial headquarters in Dublin leveraged the existing Irish operational footprint.

3. EU Membership and Market Access: Ireland's membership in the European Union provided PBI with direct access to the EU regulatory framework, including the European Medicines Agency ("EMA") centralized procedure, and facilitated trade and distribution across EU member states.

4. Proximity to Key Markets: Dublin's geographic location and connectivity to EMEA markets made it a logical hub for a non-Americas commercial organization.

5. Talent Availability: Ireland offered access to a multilingual, highly educated workforce with specific expertise in pharmaceutical regulatory affairs, pharmacovigilance, medical affairs, and commercial operations. You should emphasize that the decision to establish PBI in Ireland was driven by operational and commercial needs, not solely by tax considerations. While Ireland's corporate tax environment was one fact

I. IRS's Proposed Adjustments — Know the Numbers You should be thoroughly familiar with the specific adjustments proposed by the IRS in the NOPA. The proposed adjustments fall into two categories:

1. CSA Cost-Sharing Ratio Adjustments The IRS proposed increasing PBI's cost-sharing percentage by 8 to 12 percentage points for each of the Years at Issue. The IRS's position is that PBI's RAB shares should have been higher because, in the IRS's view, the non-Americas revenue projections used by PPC understated PBI's share of total benefits. The specific adjustments are as follows:

2. Royalty Rate Adjustments The IRS proposed increasing the legacy IP royalty rate from PPC's reported rate of 4.5% to a rate of 11.0% of non-Americas net sales for legacy compounds. The IRS's position is based on its own set of comparable license agreements, which PPC believes are not appropriate comparables. The specific adjustments are as follows:

3. Correlative Offset and Net Adjustment The IRS allowed a correlative offset of −$42.65 million to account for the corresponding reduction in PBI's income (and therefore the reduction in royalties and cost-sharing payments flowing in the other direction). The net proposed adjustment across all four years is: $235.01M (CSA) + $188.04M (royalty) − $42.65M (offset) = $380.40 million

4. Proposed Penalty The IRS has also proposed a 20% substantial valuation misstatement penalty under IRC § 6662(e). The estimated penalty exposure is approximately: $380.4M × 21% (blended effective rate) × 20% ≈ $15.98 million You should be comfortable reciting the net proposed adjustment of $380.4 million and the two major categories of adjustment (cost-sharing ratio and royalty rate). You do not need to recite ever

V. Anticipated Questions and Recommended Responses This section sets forth the questions we anticipate Appeals Officer Castañeda may ask during the conference, organized by topic area, together with recommended responses. You should review these carefully and practice delivering the responses in a natural, conversational manner during the mock Q&A session on the morning of the conference. The recommended responses ar

VI. Key Messaging Themes Throughout the conference, regardless of the specific questions asked, you should aim to reinforce the following four messaging themes. These themes are the narrative framework within which your responses should be situated. You do not need to recite these themes as talking points; rather, they should inform the tone, emphasis, and substance of your answers. A. Consistency and Good Faith PPC

VII. Practice Questions — Mock Q&A During the pre-conference meeting at 8:00 AM on February 28, 2024, at Calderwood & Harkness's New York headquarters, we will conduct a mock Q&A session to prepare you for the types of questions you may face from Appeals Officer Castañeda. I will play the role of the Appeals Officer during this exercise, and I will ask questions in the style and tone that we expect from Officer Casta

1. Walk me through PBI's organizational structure and reporting lines. Who does Aidan Naughton report to? Who reports to him?

2. Describe a specific pricing decision that PBI made independently for a non-Americas market. Can you give me a concrete example?

3. Explain why the cost-sharing ratio changed year over year from 38.2% to 42.7%. What drove the increase?

4. How do you respond to the assertion that all key R&D decisions were made in the U.S. and that PBI was merely a passive recipient of the fruits of that R&D?

5. What role did you personally play in setting the 4.5% royalty rate for the legacy compound license? Were you involved in selecting the rate, reviewing the benchmarking analysis, or approving the methodology?

6. How was the PCT payment of $312 million approved? Who within PPC and PBI approved the transaction, and what diligence was performed?

7. Who at PBI is responsible for regulatory submissions? How many regulatory professionals does PBI employ, and what is their background?

8. Does PPC's board of directors review or approve PBI's commercial decisions? Is there a governance process that requires PPC board approval for PBI's key business decisions?

9. Have there been any amendments or modifications to the CSA since its inception in 2012? If so, what were they, and what was the business rationale?

10. Can you describe PBI's relationship with PMI? How does the contract manufacturing arrangement work in practice? The mock Q&A session is designed to be rigorous. I will ask pointed follow-up questions and may challenge your responses to test how you handle pressure and uncertainty. The goal is not to make the experience uncomfortable, but to ensure that you are fully prepared for whatever the Appeals Officer may a

VIII. Documents to Review Before the Conference In preparation for the conference, you should review the following documents. Copies of all materials will be included in the Appeals Conference Document Binder, but you should familiarize yourself with the key documents in advance so that you can reference them quickly during the conference if needed.

1. Formal Protest filed December 22, 2023, including all Exhibits A through E: • Exhibit A: PPC Corporate Entity Chart • Exhibit B: CSA Summary and Cost-Sharing Ratio Analysis • Exhibit C: Economic Analyses (CUT, CPM/TNMM, PCT DCF) • Exhibit D: PBI Substance Evidence • Exhibit E: Penalty Protection Documentation

2. PBI Functional Analysis (updated March 15, 2023) — this document describes PBI's functions, assets, and risks in detail and is a key supporting document for PBI's substance position.