Contract analysis

1. Call Logistics Date and Time: September 20, 2023, 2:00 p.m. to 3:35 p.m. Eastern Time (approximately 95 minutes). Format: Telephone conference call. Calderwood & Harkness Participants: • Leonard Cross, Responsible Partner, Tax Department • Garrett Simmons, Lead Associate, Tax Department • Leila Nazari, Working Associate, Tax Department (note-taker) IRS Participants: • Franklin Rosario, Attorney-Advisor, IRS Office

2. Opening Remarks 2.1 Supervisory Revenue Agent Meskill's Introduction Supervisory Revenue Agent Gerald Meskill opened the call at approximately 2:00 p.m. Meskill stated that the examination team had substantially completed its factual development of the case and that the primary purpose of the call was to provide an opportunity for IRS Chief Counsel and taxpayer's counsel to discuss the respective legal positions o

3. IRS Legal Position: CSA Compliance and Cost-Sharing Ratios 3.1 Rosario's Position on Reasonably Anticipated Benefits Rosario stated that IRS Chief Counsel had conducted a thorough review of the CSA agreement between PPC and PBI, which was effective as of July 1, 2012, as well as the annual cost-sharing calculations for tax years 2017 through 2020. Rosario indicated that Chief Counsel had identified what it believe

4. IRS Legal Position: Legacy IP Royalty Rate 4.1 Rosario's Position on the 4.5% Rate Rosario turned to the second principal area of proposed adjustment: the royalty rate applicable to legacy intangible property. Rosario explained that the term "legacy IP," as used in the examination, referred to pre-2012 vintage pharmaceutical compounds that were developed by PPC prior to the effective date of the CSA and that were

5. IRS Legal Position: Economic Substance of PBI 5.1 Rosario's Position on Economic Substance and DEMPE Functions Rosario stated that Chief Counsel's position also included a challenge to PBI's economic substance, framed in terms of the DEMPE analysis framework. Rosario asserted that the key DEMPE functions — Development, Enhancement, Maintenance, Protection, and Exploitation of intangible property — remained substan

6. Discussion of Correlative Adjustments and Double-Counting Cross raised the issue of potential double-counting between the IRS's two principal adjustment categories — the CSA cost-sharing adjustments and the legacy IP royalty rate adjustments. Cross noted that both proposed adjustments targeted the allocation of income between PPC and PBI with respect to overlapping product lines and revenue streams. Cross stated t

7. Discussion of Penalty Position 7.1 Rosario's Position on IRC § 6662(e) Penalty Rosario indicated that Chief Counsel was recommending the assertion of the substantial valuation misstatement penalty under IRC § 6662(e) at the 20% rate, applicable to any net § 482 allocation. Rosario stated that if the total proposed adjustment of approximately $380 million was sustained, the resulting penalty exposure — calculated a

8. Anticipated Timeline and Next Steps Rosario indicated that Chief Counsel expected to finalize its analysis and supporting legal memoranda in the coming weeks and to support the examination team's issuance of a Notice of Proposed Adjustment within approximately three to four weeks from the date of the call. (The NOPA was ultimately issued on October 12, 2023, approximately three weeks after the call.) Rosario confi

9. Privileged Observations and Strategic Notes CALDERWOOD & HARKNESS LLP — INTERNAL ONLY ATTORNEY WORK PRODUCT — NOT FOR DISTRIBUTION The following observations and strategic assessments reflect the mental impressions, conclusions, opinions, and legal theories of counsel following the September 20, 2023 call. These observations are intended solely for internal use by the Calderwood & Harkness engagement team and are

11. Distribution Internal Distribution Only — Privileged and Confidential; Attorney Work Product Copies of this memorandum are to be distributed as follows: • Leonard Cross, Responsible Partner, Tax Department, Calderwood & Harkness LLP • Sylvia Hartwell, Partner, Tax Department, Calderwood & Harkness LLP • Garrett Simmons, Lead Associate, Tax Department, Calderwood & Harkness LLP • Leila Nazari, Working Associate, T