Contract analysis

I. Purpose and Background A. Purpose of This Memorandum This memorandum is intended to serve as the primary preparation document for the Calderwood & Harkness LLP engagement team in advance of the anonymous pre-filing conference with the Internal Revenue Service Advance Pricing and Mutual Agreement Program ("APMA"), currently scheduled for May 19, 2025, at the IRS APMA offices in Washington, D.C. The memorandum addre

II. Summary of Pre-Filing Memorandum Positions This section summarizes the key substantive positions presented in the Pre-Filing Memorandum submitted to IRS APMA on April 14, 2025. The engagement team should be thoroughly familiar with each of these positions, as they form the foundation for the discussion at the pre-filing conference. A. Taxpayer Profile (as Anonymously Described) The Pre-Filing Memorandum describes

1. Tangible Goods (Wafer/Die Sales). The Applicant Parent manufactures semiconductor wafers and singulated die at its European fabrication facilities and sells these products to the US Subsidiary under the Master Intercompany Supply Agreement ("MISA"). The MISA has been in effect since January 1, 2019, and was amended on July 1, 2022, primarily to update the product scope to include 3nm-node products and to revise th

2. Royalties (IP License). The US Subsidiary pays a royalty to the Applicant Parent for the right to use the Applicant Parent's proprietary semiconductor process technology and design libraries in connection with the US Subsidiary's marketing, distribution, and design-support activities. The royalty is paid pursuant to an IP License Agreement that has been in effect since January 1, 2019. The royalty rate is currentl

3. Cost-Sharing Contributions (R&D CSA). The Applicant Parent and the US Subsidiary are parties to a Qualified Cost Sharing Arrangement that has been in effect since July 15, 2018. The CSA covers the joint development of next-generation 2-nanometer and sub-2-nanometer semiconductor process technology. Under the CSA, each participant bears its share of qualified R&D costs in proportion to its anticipated benefit share

4. Platform Contribution Transaction ("PCT"). In connection with the formation of the CSA in 2018, the US Subsidiary made a buy-in payment (Platform Contribution Transaction) of $312.5 million to the Applicant Parent. The PCT compensated the Applicant Parent for making its pre-existing process technology and design library IP available to the US Subsidiary as a platform for the CSA's joint development activities. The

III. Anticipated IRS Questions and Talking Points This section identifies the questions and lines of inquiry that we anticipate the IRS APMA team will raise during the pre-filing conference. For each anticipated question or topic area, the section provides recommended talking points and response strategies. The engagement team should review these talking points carefully and be prepared to deliver them in a natural,

IV. Protocol for Anonymous Pre-Filing Conference This section establishes the ground rules and procedural protocol for the anonymous pre-filing conference on M