Contract analysis

From: "Garrett Simmons" To: "Susan Lam" Cc: "Leonard Cross" Subject: Penterra Pharmaceuticals Corp. — IRS Examination (LB&I-NE-TP-2022-00641) — Transfer Pricing Documentation and Workpaper Request

I hope this message finds you well. My name is Garrett Simmons, and I am the Lead Associate in the Tax Department at Calderwood & Harkness LLP working on the IRS examination defense of Penterra Pharmaceuticals Corp. ("PPC") (EIN 22-3741856), C&H Matter No. 1018-00009. I am writing to request certain transfer pricing documentation and supporting workpapers that your group at Crestfield prepared on behalf of PPC for th

By way of background, Calderwood & Harkness was engaged on June 2, 2022 as outside tax counsel to defend PPC in the ongoing IRS Large Business & International Division examination covering tax years 2017, 2018, 2019, and 2020. Marcus Whitfield, VP of Global Tax at PPC (copied here), has authorized full coordination between Calderwood & Harkness and Crestfield & Associates on this matter. As you know, Crestfield serve

We are currently in the process of responding to the IRS exam team's initial Information Document Requests and developing PPC's overall defense strategy. To that end, we need to review Crestfield's original transfer pricing documentation and underlying workpapers as a foundational step. I would appreciate it if you could provide us with the following materials:

**1. Contemporaneous Transfer Pricing Documentation.** Complete copies of the transfer pricing reports/studies prepared for each of TY 2017, 2018, 2019, and 2020, including all appendices, exhibits, and schedules. These are the reports prepared to satisfy the contemporaneous documentation requirements under IRC § 6662(e)(3)(B) and Treas. Reg. § 1.6662-6.

**2. Cost-Sharing Arrangement Analysis and Workpapers.** All workpapers supporting the qualified cost-sharing arrangement ("CSA") between PPC and Penterra Biopharma International DAC ("PBI"), including:

(a) Reasonably anticipated benefit ("RAB") calculations and the methodology for determining PBI's cost-sharing percentages for each year (38.2% for 2017, 39.6% for 2018, 41.1% for 2019, and 42.7% for 2020);

(b) Composition and detailed breakdown of the qualified R&D cost pool for each year ($487.3M for 2017, $523.8M for 2018, $561.2M for 2019, and $598.4M for 2020); and

(c) Any supporting revenue projections (Americas vs. non-Americas) used to derive the benefit shares.

**3. Platform Contribution Transaction (PCT) Valuation.** The original PCT valuation report and all supporting workpapers documenting the $312 million buy-in payment made by PBI to PPC effective July 1, 2012, including the income method/Discounted cash flow model, discount rate assumptions, revenue projections, and any sensitivity analyses performed.

**4. Legacy IP Royalty Rate Analysis.** All workpapers and analysis supporting the 4.5% royalty rate applied to legacy compound (pre-2012 vintage) net sales in the non-Americas territory under the intercompany license agreement between PPC and PBI, including any comparable uncontrolled transaction ("CUT") analysis or other benchmarking performed at the time the rate was established.

**5. Intercompany Agreement Files.** Copies of the executed intercompany agreements relevant to transfer pricing, specifically:

(a) The cost-sharing arrangement agreement effective July 1, 2012, together with all amendments thereto;

(b) The legacy IP license agreement (royalty arrangement) between PPC and PBI; and

(c) The contract manufacturing agreement between PBI and Penterra Manufacturing Ireland Ltd. ("PMI") (cost-plus 8% markup).

**6. Federal Income Tax Return Data.** Copies of PPC's Forms 1120 for TY 2017–2020, along with all supporting schedules — particularly Schedule M-3, international information returns (Forms 5471 for PBI and Penterra Holdings Ltd. ("PHL")), and any transfer pricing-related elections or disclosures.

**7. Product Revenue Data.** Detailed product-level revenue data by geographic territory (Americas vs. non-Americas) for Veritaxol, Imvara, and Cerulon for TY 2017–2020, as used in the transfer pricing documentation.

**Timing and Priority.** As you may appreciate, several of these materials will need to be produced to the IRS in response to pending IDRs on relatively tight timelines. Specifically, IDR No. 4 (requesting the contemporaneous transfer pricing documentation) is due August 1, 2022; IDR No. 5 (requesting the PCT valuation) is due August 10, 2022; and IDR No. 6 (requesting the R&D cost pool detail) is due August 18, 2022

With that in mind, I would ask that Items 1, 2, and 3 above be provided to us by **July 22, 2022**, if possible, with the remaining Items 4 through 7 to follow by **July 29, 2022**. Please let me know if any of these deadlines are problematic, and we can discuss alternatives.

First, we have retained Whitmore Valuation Group LLC to perform independent economic analyses in connection with the examination defense under a Kovel arrangement. Whitmore's team will need to review the original Crestfield documentation as a baseline for their work, and we will coordinate that access on our end.

Second, for privilege coordination purposes, please direct all communications and documents related to this matter to Calderwood & Harkness. I would also ask that Crestfield not communicate directly with the IRS exam team — specifically Lead Revenue Agent Patricia Dunleavy or Supervisory Revenue Agent Gerald Meskill — regarding any transfer pricing matters without first coordinating through our office. Calderwood & H

Thank you very much for your assistance, Susan. I look forward to working together on this matter. If it would be helpful, I am happy to set up an introductory call at your convenience to discuss the current status of the examination and Crestfield's role in supporting the defense going forward. In the meantime, I would appreciate it if you could confirm receipt of this email.

Please do not hesitate to reach out if you have any questions.

**Garrett Simmons** Associate, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Direct: (215) 554-7218 Email: gsimmons@calderwoodharkness.com

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