Contract analysis

I. Executive Summary This memorandum analyzes whether Penterra Pharmaceuticals Corp. ("PPC") should pursue competent authority relief under the Convention Between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, signed November 28, 1997, as amended by Protocol signed

II. Factual Background A. PPC's Corporate Structure and Intercompany Arrangements

1. Penterra Pharmaceuticals Corp. (PPC) PPC is a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol "PPCA," with its principal executive offices located at 2200 Independence Boulevard, Princeton Junction, New Jersey 08550. PPC is a specialty pharmaceutical and biotechnology company focused on three primary therapeutic areas: oncology, immunology, and rare disease. For the fiscal

2. Ownership Chain and Intermediate Holding Entity PPC's Irish operations are conducted through a two-tier structure. PPC directly owns 100% of the share capital of Penterra Holdings Luxembourg S.à r.l. ("PHL"), a société à responsabilité limitée organized under the laws of the Grand Duchy of Luxembourg, with its registered office at 14, rue Aldringen, L-1118 Luxembourg (Luxembourg Registre de Commerce et des Société

3. Penterra Biopharma International DAC (PBI) PBI is a designated activity company organized under the laws of Ireland, incorporated on March 15, 2012, with its registered office at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. PBI's Managing Director is Aidan Naughton. PBI functions as the intellectual property holding company and commercial principal for PPC's operations outside the

4. Penterra Manufacturing Ireland Ltd. (PMI) Penterra Manufacturing Ireland Ltd. ("PMI") is an Irish private limited company (Companies Registration Office No. 512347), with its principal place of business at Unit 7, Ringaskiddy Industrial Estate, Co. Cork, Ireland. PMI operates as a contract manufacturer for PBI under a contract manufacturing agreement, pursuant to which PMI manufactures finished pharmaceutical prod

5. Cost-Sharing Arrangement (CSA) Effective July 1, 2012, PPC and PBI entered into a Qualified Cost Sharing Arrangement (the "CSA") within the meaning of Treasury Regulation § 1.482-7. Under the CSA, PBI co-funds a share of PPC's ongoing research and development costs in exchange for the right to exploit the resulting intangible property outside the Americas. PPC retains the right to exploit the resulting intangible

6. Legacy IP License Separate from the CSA, PBI licenses from PPC the rights to exploit certain pre-2012 pharmaceutical compounds and intellectual property in the non-Americas territory under a Legacy IP License Agreement effective July 1, 2012 (the "Legacy License"). The Legacy License provides for a running royalty of 4.5% of PBI's net sales attributable to the licensed pre-2012 compounds. The key pre-2012 compound

7. Key Products PPC's three key products during the 2017–2020 period, and their respective revenue profiles, are as follows: • Veritaxol (oncology — PD-L1 inhibitor): 2020 global net revenue of $3.12 billion, of which $1.34 billion was attributable to the non-Americas territory (PBI). Veritaxol received its initial FDA approval in 2015 and EMA approval in 2016. It is the largest single product in PPC's portfolio and

1. Examination History The IRS opened an examination of PPC's consolidated federal income tax returns for tax years 2017 through 2020 on May 16, 2022, when PPC received Letter 2205-A (Notification of Examination) from the IRS Large Business and International Division ("LB&I"). The examination was assigned to the Northeast Transfer Pricing Practice, under Exam Team Identification Number LB&I-NE-TP-2022-00641. The exam

2. Notice of Proposed Adjustment (NOPA) On October 12, 2023, the IRS issued a Notice of Proposed Adjustment ("NOPA") proposing the following adjustments to PPC's taxable income for tax years 2017 through 2020: a. CSA Cost-Sharing Ratio Adjustment The IRS proposes to increase PBI's cost-sharing percentages by approximately 8 to 12 percentage points for each year at issue, on the basis that PPC's contemporaneous reason

3. Procedural Status The IRS issued a 30-Day Letter on November 8, 2023, affording PPC the opportunity to file a formal Protest and request a conference with IRS Appeals. PPC filed its formal Protest on December 22, 2023, as discussed in our separate memorandum of the same date. The case is expected to be assigned to an IRS Appeals Officer in January 2024, and an Appeals conference has been scheduled for February 28,

III. Legal Framework for Competent Authority / MAP Relief A. U.S.-Ireland Income Tax Treaty — Article 25 (Mutual Agreement Procedure) The primary treaty mechanism for addressing the double taxation at issue is the Mutual Agreement Procedure set forth in Article 25 of the U.S.-Ireland Treaty. The relevant provisions are as follows:

Article 25(1) provides that where a person considers that the actions of one or both of the Contracting States result or will result in taxation not in accordance with the provisions of the Treaty, that person may, irrespective of the remedies provided by the domestic law of those States, present the case to the competent authority of the Contracting State of which it is a resident (or, in certain cases, of which it

Article 25(2) provides that the competent authority shall endeavor, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the provisions of the Treaty. Any agreement reached shall be imp

Article 25(3) provides that the competent authorities of the Contracting States shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Treaty. They may also consult together for the elimination of double taxation in cases not provided for in the Treaty. This provision broadens the scope of the MAP process beyond specific taxpayer cases to encomp

Article 9 of the Treaty provides the substantive basis for transfer pricing adjustments and correlative relief:

Article 9(1) permits a Contracting State to adjust the profits of an enterprise where conditions between associated enterprises differ from those that would be made between independent enterprises dealing at arm's length. This provision authorizes the IRS's proposed § 482 adjustment, to the extent it is consistent with the arm's-length principle as reflected in the Treaty.

Article 9(2) is the critical provision for correlative relief. It provides that where one Contracting State includes in the profits of an enterprise of that State — and taxes accordingly — profits on which an enterprise of the other Contracting State has been charged to tax in that other State, and the profits so included are profits which would have accrued to the first-mentioned enterprise if the conditions made be

Article 9(2) is the primary mechanism by which Ireland would reduce PBI's Irish taxable income to correspond to any U.S. § 482 adjustment sustained against PPC. It is important to note that Article 9(2) does not impose an automatic or mandatory obligation on Ireland to provide a correlative adjustment. The provision requires that Ireland "shall make an appropriate adjustment" — but only if Ireland "considers" that th

IV. Analysis of Whether to Pursue a MAP Request A. Arguments in Favor of Filing a MAP Request Several considerations weigh in favor of PPC pursuing a MAP request under Article 25 of the Treaty:

1. Elimination of Double Taxation. The primary and most compelling reason to file a MAP request is the elimination of economic double taxation. Without a corresponding Irish adjustment to reduce PBI's Irish taxable income, PPC and PBI collectively bear the full burden of taxation by both jurisdictions on the same income. At the full proposed adjustment level of $380.4 million, the aggregate double-tax cost is substan

2. Treaty Right. PPC has a clear and well-established right under Article 25(1) of the Treaty to request competent authority assistance. This right is independent of PPC's domestic remedies (Appeals, Tax Court) and exists precisely for situations like the one at hand, where one Contracting State proposes a transfer pricing adjustment that creates double taxation. Failure to exercise this right would leave PPC without

3. Ireland's General Willingness to Engage. As noted in Section III.D above, Ireland has a strong track record of engaging constructively in MAP proceedings and providing correlative adjustments, particularly in the bilateral U.S.-Ireland context. The Irish Revenue Commissioners have demonstrated a commitment to the arm's-length principle and to the resolution of double taxation through the MAP process. Ciarán Thornb

4. Preservation of Position. Filing at least a protective MAP request ensures that PPC does not inadvertently lose its right to competent authority relief through the passage of time. Although the three-year deadline (October 12, 2026) is not immediately pressing, prudent practice counsels in favor of an early protective filing, particularly given the complexity of the underlying issues and the possibility that domes

5. BEPS Action 14 Commitment. Both the United States and Ireland have made public commitments under the BEPS Action 14 minimum standard to ensure effective and timely MAP resolution. OECD MAP statistics for the U.S.-Ireland bilateral relationship show high resolution rates and generally favorable outcomes for taxpayers in transfer pricing MAP cases. These commitments provide a favorable institutional backdrop for PPC

1. The Adjustment Amount Is Not Yet Final. The IRS has proposed a $380.4 million adjustment, but this amount is subject to review and potential reduction through the Appeals process. As discussed in our separate Appeals strategy memorandum, we believe there is a reasonable basis to achieve settlement at approximately 10–15% of the proposed adjustment — i.e., in the range of $38 million to $57 million. Filing a MAP re

2. Cost Efficiency. MAP proceedings involve substantial professional fees on both sides of the Atlantic. As discussed in Section VIII below, we estimate total MAP costs in the range of $260,000 to $470,000, encompassing both U.S. counsel fees (C&H) and Irish counsel fees (T&K). If the Appeals process achieves a favorable settlement at a fraction of the proposed adjustment, the double-tax exposure on the settled amoun

3. Strategic Considerations for Appeals. Filing a MAP request concurrently with or prior to the Appeals process could send an unintended signal to the IRS Appeals Officer that PPC expects a significant adjustment to be sustained and is already preparing for the double-tax consequences. This could undercut PPC's negotiating leverage at Appeals, where PPC's posture should be one of confidence in the strength of its tra

4. Timeline Considerations. MAP proceedings typically take 24 to 36 months from filing to resolution, with the OECD target being 24 months. The IRS Appeals process, by contrast, is expected to proceed on a faster timeline: the Appeals conference is scheduled for February 28, 2024, and we anticipate that settlement discussions could conclude within several months thereafter. By deferring the MAP filing until after App

5. Coordination Complexity. Simultaneous pursuit of domestic remedies (Appeals) and competent authority relief (MAP) requires careful coordination under Rev. Proc. 2015-40, §§ 7.03–7.05. While the revenue procedure permits concurrent proceedings, the practical reality is that APMA will generally defer substantive action on a MAP request until domestic proceedings have concluded. Filing a MAP request now would therefo

V. Procedural Requirements for a MAP Request A. U.S. Filing Requirements (Rev. Proc. 2015-40) Should PPC elect to file a substantive MAP request with the U.S. Competent Authority, the filing must comply with the requirements of Rev. Proc. 2015-40. The following is a summary of the key procedural requirements: Submission Address. The MAP request must be submitted to the U.S. Competent Authority, currently within the A

VI. Potential Outcomes of a MAP Request A. Full Correlative Adjustment by Ireland The best-case outcome of a MAP request would be a full correlative adjustment by the Irish Revenue Commissioners — i.e., Ireland would agree that the U.S. § 482 adjustment (or the settled portion thereof) is consistent with the arm's-length principle and would make a corresponding downward adjustment to PBI's Irish taxable income for th

VII. Interaction with Other Tax Provisions A. GILTI and BEAT (TY 2018–2020) The IRC § 482 adjustment and any resulting MAP or corresponding adjustment would have secondary effects on PPC's computations under the Global Intangible Low-Taxed Income ("GILTI") provisions of IRC § 951A and the Base Erosion and Anti-Abuse Tax ("BEAT") provisions of IRC § 59A, both of which are effective for tax years beginning after Decemb

VIII. Cost-Benefit Analysis A. Estimated Costs of a MAP Request Based on our experience with comparable MAP proceedings and our assessment of the complexity of the issues involved, we estimate the following costs for a full MAP proceeding: U.S. Counsel Fees (Calderwo