tax-structuring-memo-withholding-vat.docx

1008-00010 · Lumos Analytics Inc · Memos & Analyses/Tax

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MEMORANDUM

TO: Daniel Ostroff, Vice President, Legal & Compliance, Lumos Analytics Inc. Marcus Ellenberg, Chief Financial Officer, Lumos Analytics Inc.

FROM: Leila Nazari, Associate, Tax, Calderwood & Harkness LLP Robert Jansen, Associate, Tax, Calderwood & Harkness LLP

DATE: March 15, 2024

RE: Tax Structuring Memorandum — Withholding Tax & VAT Considerations for the EMEA Channel Reseller Program Agreement between Lumos Analytics Inc. and Meridian Data Solutions GmbH

Matter No.: 1008-00010

CC: Howard Bellamy, Partner, Calderwood & Harkness LLP Ingrid Svensson, Managing Director, Caldwell & Pryce Advisory LLC

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I. Executive Summary

This memorandum analyzes the withholding tax implications on cross-border payments from Meridian Data Solutions GmbH ("Meridian" or "Meridian GmbH"), a German limited liability company, to Lumos Analytics Inc. ("Lumos" or the "Company"), a Delaware C-Corporation headquartered in Palo Alto, California, under the EMEA Channel Reseller Program Agreement (the "Agreement"). In addition, this memorandum addresses the value added tax ("VAT") treatment of the resale of Lumos Prism™ software-as-a-service ("SaaS") subscriptions across the Europe, Middle East, and Africa territory (the "EMEA Territory").

The Agreement contemplates a total contract value of $30,000,000 over a five-year initial term commencing April 1, 2024 and terminating March 31, 2029. The Minimum Annual Commitment ("MAC") schedule is structured as follows: Year 1 — $4,500,000; Year 2 — $5,400,000; Year 3 — $6,300,000; Year 4 — $6,900,000; and Year 5 — $6,900,000. Meridian will receive a 30% reseller discount off Lumos's published EMEA list prices. All payments under the Agreement are denominated in U.S. dollars, and Meridian bears all foreign exchange risk associated with the conversion of local currency revenue into U.S. dollars for settlement purposes.

The payment flow under the Agreement is structured such that Meridian pays Lumos on a quarterly basis via wire transfer from Zarvenische Handelsbank AG (relationship manager: Thomas Weidner) to Pinnacle National Bank, N.A. (relationship manager: David Okonkwo), with a 5% holdback on each quarterly payment directed to Evergreen Trust Company, N.A. (escrow officer: Maria Gutierrez) to secure potential indemnification claims under the Agreement.

This memorandum has been coordinated with Caldwell & Pryce Advisory LLC ("Caldwell & Pryce"), where Ingrid Svensson, Managing Director, has prepared a companion transfer pricing memorandum dated March 15, 2024 (the "Transfer Pricing Memorandum"). The Transfer Pricing Memorandum confirms that the 30% reseller discount reflects arm's-length pricing, as validated through the Comparable Uncontrolled Price ("CUP") method, consistent with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 edition).

Our key conclusions are as follows:

1. Withholding Tax — Business Profits / Royalties. The U.S.-Germany Income Tax Treaty (the "Treaty") reduces withholding on royalties to 0% for payments properly characterized as software resale consideration. We believe the stronger position is that Meridian's payments to Lumos constitute business profits under Article 7 of the Treaty, which are taxable only in the United States absent a German permanent establishment. Even if German tax authorities were to recharacterize the payments as royalties, Article 12 of the Treaty provides a 0% withholding rate. In either case, no German withholding tax should apply, provided appropriate documentation is maintained.

2. VAT — Reverse Charge Mechanism. Under the EU VAT Directive (Council Directive 2006/112/EC) and its implementing regulations, the reverse charge mechanism applies to business-to-business ("B2B") cross-border supplies of electronically supplied services, including SaaS subscriptions. Meridian GmbH, as the business recipient, is responsible for self-assessing and accounting for German VAT on supplies received from Lumos. Lumos is not required to register for VAT in Germany or other EMEA jurisdictions solely for these B2B supplies.

3. Structuring Recommendations. We set forth below certain recommendations designed to minimize tax leakage, including documentation of Treaty benefits, optimized invoicing practices, and ongoing compliance monitoring as Meridian expands its territorial coverage within EMEA.

II. Background and Transaction Structure

A. Parties and Roles

Lumos Analytics Inc. Lumos is a Delaware C-Corporation (Employer Identification Number: 84-3291056) with its principal offices located at 4700 Sandhill Road, Suite 300, Palo Alto, California 94304. Lumos's registered agent for service of process in Delaware is Pacific Registered Agents LLC, located at 1209 Orange Street, Wilmington, Delaware 19801. Lumos is the developer and licensor of the Lumos Prism™ platform, a cloud-based analytics and data intelligence SaaS solution. Under the Agreement, Lumos grants Meridian a non-exclusive right to resell Lumos Prism™ SaaS subscriptions within the EMEA Territory. For the fiscal year ended December 31, 2023, Lumos reported annual recurring revenue ("ARR") of approximately $187.4 million. Lumos is majority-owned, with 62.3% of its outstanding equity held by Crestline Capital Partners, LP, a growth-equity private equity fund. The key contacts at Crestline Capital Partners, LP are Jonathan Whitfield, Managing Partner, and Rebecca Solari, Portfolio Operations Partner.

Meridian Data Solutions GmbH. Meridian is a Gesellschaft mit beschränkter Haftung (GmbH) organized under the laws of the Federal Republic of Germany, registered with the Amtsgericht München (Munich Commercial Register) under registration number HRB 274581. Meridian's registered office is located at Leopoldstraße 78, 80802 München, Germany. Meridian's German tax identification number (Steuernummer) is 143/117/60253, and its VAT identification number is DE319274105. Under the Agreement, Meridian serves as an authorized, non-exclusive reseller of Lumos Prism™ SaaS subscriptions in the EMEA Territory. For the fiscal year ended December 31, 2023, Meridian reported total revenue of approximately €312 million. Meridian's managing director (Geschäftsführer) is Florian Eckstein, and its General Counsel is Dr. Anneliese Brandt.

Pre-Approved Sub-Distributors. The Agreement designates two pre-approved sub-distributors through which Meridian may resell Lumos Prism™ subscriptions in specific sub-territories:

(a) Meridian Data Solutions UK Ltd (Companies House Registration No. 12847391), with its registered office at 14 Fenchurch Place, London EC3M 5AJ, United Kingdom. The sole director is Katarina Voss. Meridian UK is authorized to resell in the United Kingdom and Ireland.

(b) Meridian Data Solutions SARL (SIREN 912 483 057), with its registered office at 27 Rue de la Boétie, 75008 Paris, France. The managing director (Gérant) is Jean-Philippe Moreau. Meridian France is authorized to resell in France, Belgium, Luxembourg, and French-speaking Switzerland.

Both sub-distributors are wholly-owned subsidiaries of Meridian GmbH and operate pursuant to sub-distribution agreements that mirror the material terms of the primary Agreement.

B. Payment Structure

The payment structure under the Agreement is summarized as follows:

Reseller discount. Meridian purchases Lumos Prism™ SaaS subscriptions at a 30% discount off Lumos's published EMEA list prices. The discount is applied uniformly across all product tiers and subscription terms.

Minimum Annual Commitment Schedule. The Agreement imposes a MAC schedule that requires Meridian to achieve minimum aggregate annual purchase volumes as follows:

The aggregate MAC across the five-year initial term totals $30,000,000, reconciled as $4,500,000 + $5,400,000 + $6,300,000 + $6,900,000 + $6,900,000 = $30,000,000.

Payment Terms. All invoices are payable net 45 days from the invoice date. Late payment interest accrues at a rate of 1.5% per month, which equates to 18% per annum, compounded monthly.

Escrow Holdback. The Agreement provides for a 5% escrow holdback on all quarterly payments. The holdback amounts are directed to Evergreen Trust Company, N.A. (escrow officer: Maria Gutierrez) and are held in escrow to secure Meridian's potential indemnification obligations under the Agreement. By way of illustration, the Year 1 quarterly holdback is calculated as follows: $4,500,000 annual MAC ÷ 4 quarters = $1,125,000 per quarter × 5% = $56,250 per quarter.

Currency. All amounts payable under the Agreement are denominated in United States dollars. Meridian bears the full risk of foreign exchange fluctuations between the euro (or other local currencies in which Meridian collects revenue from end users) and the U.S. dollar.

C. Nature of Payments

The characterization of payments flowing from Meridian to Lumos is the threshold question for withholding tax analysis. We analyze this characterization as follows:

Resale Consideration, Not Royalty Payments. The payments made by Meridian to Lumos represent consideration for the right to resell SaaS subscriptions — that is, the right to purchase and redistribute subscription access to the Lumos Prism™ platform to end users in the EMEA Territory. Critically, the payments do not constitute royalties for the use of, or the right to use, Lumos's intellectual property. This distinction is fundamental to the withholding tax analysis because royalties paid to non-resident entities are generally subject to withholding tax under German domestic law, whereas business profits from the purchase and resale of services are not.

No intellectual Property License Granted. The Agreement does not grant Meridian a license to use, reproduce, modify, or create derivative works of the underlying Lumos Prism™ software code. Meridian does not receive access to the source code of Lumos Prism™ at any time. Meridian merely acts as an authorized reseller, facilitating end user access to the Lumos Prism™ platform through SaaS subscription agreements between Lumos and the end users. The subscription access itself is delivered electronically by Lumos via its cloud infrastructure; Meridian's role is limited to sales, marketing, and customer relationship management.

Ancillary Trademark License. Exhibit D to the Agreement grants Meridian a limited, non-exclusive, non-transferable trademark license to use the Lumos and Lumos Prism™ trade names and logos in connection with authorized marketing and resale activities. This trademark license is purely ancillary to the primary resale arrangement and does not constitute a separate royalty stream. The trademark license does not grant Meridian any ownership rights in, or independent right to exploit, Lumos's trademarks. The license is coterminous with the Agreement and terminates automatically upon expiration or termination of the Agreement.

No Modification Rights; Feedback License. Meridian has no right to modify, adapt, or customize the Lumos Prism™ platform. To the extent Meridian provides feedback, suggestions, or enhancement requests to Lumos, the Agreement provides that such feedback is licensed from Meridian to Lumos (not the reverse), and Lumos retains all rights to incorporate such feedback into future product releases without compensation to Meridian. This feedback license further reinforces the conclusion that the flow of intellectual property rights runs from Meridian to Lumos, not from Lumos to Meridian, which is inconsistent with a royalty characterization of Meridian's payments.

III. Withholding Tax Analysis

A. German Withholding Tax on Payments to U.S. Entities

1. German Domestic Law — Characterization of SaaS Resale Payments. Under German domestic tax law, as codified principally in the Einkommensteuergesetz ("EStG") and the Körperschaftsteuergesetz ("KStG"), withholding tax applies to certain categories of payments made by German-resident entities to non-resident recipients. The relevant provisions are as follows:

Section 49(1) No. 2 EStG — Commercial Activities. Income from commercial activities (Einkünfte aus Gewerbebetrieb) earned by a non-resident in Germany is subject to German limited tax liability (beschränkte Steuerpflicht) only if the non-resident maintains a permanent establishment (Betriebsstätte) or a permanent representative (ständiger Vertreter) in Germany. As discussed in Section III.A.3 below, Lumos does not maintain any physical presence, employees, or fixed base in Germany. The EMEA data hosting for Lumos Prism™ is provided by Stratos Cloud Services AG at its Frankfurt data center, but this arrangement involves a third-party cloud service provider operating its own infrastructure. Lumos does not own, lease, or exercise operational control over the physical servers. Accordingly, Lumos does not have a permanent establishment in Germany under Section 49(1) No. 2 EStG, and this provision does not give rise to German taxing jurisdiction over Lumos's business profits.

Section 49(1) No. 6 EStG and Section 50a EStG — Withholding on Royalties. German domestic law imposes withholding tax on royalty payments made by German-resident entities to non-resident recipients. Under Section 50a(1) No. 3 EStG, the payor must withhold tax at a rate of 15% (plus the 5.5% solidarity surcharge on the withholding tax amount, resulting in an effective combined rate of 15.825%) on the gross amount of royalty payments. For purposes of this provision, "royalties" include payments for the use of, or the right to use, copyrights, patents, trademarks, designs, plans, secret formulas, or other intellectual property.

Key Question: Royalty or Business Profit? The central question under German domestic law is whether the payments from Meridian to Lumos are characterized as royalty payments (for the use of or the right to use intellectual property) or as business profits from the purchase and resale of services. If the payments are royalties, the 15.825% withholding rate under Section 50a EStG applies as a starting point (subject to Treaty reduction). If the payments are business profits, no withholding obligation arises under German domestic law (absent a permanent establishment).

Analysis. We conclude that the payments made by Meridian to Lumos are properly characterized as consideration for the purchase and resale of SaaS subscription access, not as royalties for the use of intellectual property. This conclusion is supported by several factors:

(a) Meridian does not obtain a copyright license. The Agreement does not grant Meridian any right to reproduce, copy, distribute, or publicly perform the Lumos Prism™ software. Meridian does not receive a copy of the software in any form, whether in source code or object code.

(b) Meridian does not reproduce software. The SaaS model is inherently different from traditional software licensing. End users access Lumos Prism™ through a web browser or API interface; no software is downloaded, installed, or reproduced on Meridian's or the end user's local systems (other than browser-cached elements that are incidental to the SaaS delivery model).

(c) Meridian merely resells access. Meridian's role is that of a reseller — it purchases subscription access from Lumos at a discounted price and resells that access to end users at the EMEA list price (or such other price as Meridian determines, subject to any applicable minimum advertised price guidelines). The economic substance of the arrangement is a buy-sell transaction for services, not a license of intellectual property.

(d) No modification rights. Meridian has no right to modify, adapt, or create derivative works of the Lumos Prism™ platform, which further distinguishes the arrangement from a software license that would give rise to royalty income.

(e) Feedback license runs from Meridian to Lumos. The direction of the intellectual property license (feedback from Meridian to Lumos) is the reverse of what would be expected in a royalty-bearing arrangement.

German tax authorities, including the Bundesfinanzhof (Federal Tax Court or "BFH") and the Bundesministerium der Finanzen ("BMF"), have increasingly recognized the distinction between SaaS-type arrangements and traditional software licensing for withholding tax purposes. While German administrative guidance has historically been cautious, the growing body of BFH case law and BMF circulars supports the position that payments for cloud-based software services do not constitute royalties where the recipient does not obtain a copyright license or the right to use the underlying intellectual property.

Conclusion. We believe there is a strong position that payments from Meridian to Lumos are characterized as business profits under German domestic law, not as royalties subject to withholding under Section 50a EStG. However, there is residual risk that German tax authorities could seek to recharacterize the payments as royalties, particularly if the structure of the arrangement changes in ways that blur the distinction between resale consideration and royalty income (e.g., if Meridian were granted access to source code or modification rights). As discussed below, this risk is mitigated by Treaty protection.

2. U.S.-Germany Income Tax Treaty (Convention for the Avoidance of Double Taxation). The United States and the Federal Republic of Germany are parties to a Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed June 29, 1989, with a protocol signed June 1, 2006 (collectively, the "Treaty"). The Treaty provides the following protections relevant to the payment flows under the Agreement:

Article 7 — Business Profits. Under Article 7 of the Treaty, business profits of an enterprise of a Contracting State (in this case, the United States) are taxable only in that State, unless the enterprise carries on business in the other Contracting State (Germany) through a permanent establishment situated therein. If the enterprise does carry on business through a permanent establishment, the profits of the enterprise may be taxed in Germany, but only so much of them as is attributable to that permanent establishment. As established in Section III.A.3 below, Lumos does not have a permanent establishment in Germany. Accordingly, if the payments from Meridian to Lumos are properly characterized as business profits, Article 7 shields those profits from German taxation entirely, and no withholding tax applies.

Article 12 — Royalties. Under Article 12 of the Treaty, royalties arising in a Contracting State (Germany) and beneficially owned by a resident of the other Contracting State (the United States) shall be taxable only in the United States. In other words, the Treaty provides a 0% withholding rate on royalties, eliminating the 15.825% domestic withholding rate that would otherwise apply under Section 50a EStG. For purposes of Article 12, the term "royalties" includes payments of any kind received as consideration for the use of, or the right to use, any copyright, patent, trademark, design, plan, secret formula, or process, or for information concerning industrial, commercial, or scientific experience.

Practical Effect — Belt and Suspenders. The practical significance of the Treaty for the arrangement between Lumos and Meridian is that, regardless of whether the payments are characterized as business profits or as royalties, the Treaty eliminates German withholding tax:

(a) If payments are business profits: Article 7 applies, and Germany has no taxing jurisdiction (no PE). Withholding rate: 0%.

(b) If payments are royalties: Article 12 applies, and the Treaty reduces the withholding rate to 0%. Withholding rate: 0%.

This "belt and suspenders" analysis provides significant comfort that no German withholding tax will apply to the payment flows under the Agreement, irrespective of the characterization debate.

Requirements for Treaty Benefits. To claim the benefits of the Treaty, the following conditions must be satisfied:

(a) U.S. Tax Residence. Lumos must be a "resident" of the United States for purposes of the Treaty. As a corporation organized under the laws of the State of Delaware, with its principal place of management and business in Palo Alto, California, and subject to U.S. federal income tax on its worldwide income, Lumos clearly satisfies the U.S. residency requirement.

(b) Beneficial Ownership. Lumos must be the "beneficial owner" of the income received from Meridian. As the direct recipient and economic beneficiary of the resale payments — with no interposed conduit entities — Lumos satisfies the beneficial ownership requirement.

(c) Limitation on Benefits (LOB). Article 28 of the Treaty contains a Limitation on Benefits provision designed to prevent "treaty shopping" by entities that do not have a genuine connection to the United States. Lumos, as a substantial operating company with $187.4 million in ARR and active business operations in the United States, satisfies the "active trade or business" test under Article 28(3). In addition, Lumos's majority ownership by Crestline Capital Partners, LP, a U.S. limited partnership, supports the conclusion that Lumos's ownership structure does not present LOB concerns. We note that a detailed LOB analysis should be refreshed annually to account for any changes in Lumos's ownership or business activities.

Administrative Requirements. To implement the Treaty-based withholding exemption at source, the following administrative steps are required:

(a) Lumos should obtain a Certificate of U.S. Tax Residence (IRS Form 6166) from the Internal Revenue Service. This form serves as official confirmation of Lumos's status as a U.S. tax resident for Treaty purposes. Form 6166 should be obtained on an annual basis to ensure that Meridian has current documentation on file.

(b) Meridian should file an application for a Freistellungsbescheinigung (withholding tax exemption certificate) with the German Bundeszentralamt für Steuern ("BZSt"). The Freistellungsbescheinigung authorizes Meridian to make payments to Lumos without applying withholding tax at source, rather than requiring Lumos to seek a refund of withheld amounts after the fact. The application typically requires submission of the IRS Form 6166, a copy of the Agreement, and a description of the payment characterization.

We strongly recommend that both Lumos and Meridian complete these administrative steps prior to the first quarterly payment under the Agreement, which is anticipated to be due in or around mid-May 2024 (assuming an invoice date of April 1, 2024, with net 45-day payment terms).

3. Permanent Establishment Risk Assessment. The absence of a German permanent establishment is a critical predicate for the withholding tax analysis under both German domestic law and the Treaty. We have assessed the PE risk as follows:

No Physical Presence. Lumos does not maintain any offices, facilities, warehouses, or other fixed places of business in Germany. Lumos has no employees based in Germany, and no Lumos personnel are stationed in or regularly travel to Germany for business purposes.

Data Center — Stratos Cloud Services AG. Lumos Prism™ utilizes data hosting services provided by Stratos Cloud Services AG at its Frankfurt, Germany data center. However, the data center is owned, operated, and controlled by Stratos Cloud Services AG, an independent third-party cloud infrastructure provider. Lumos does not own, lease, or exercise control over the physical servers at the Frankfurt data center. Under the OECD Model Tax Convention commentary (2017, Commentary on Article 5, paragraphs 122-131), a server used by a third-party cloud provider does not constitute a permanent establishment of the customer using the cloud services. The server is at the disposal of the cloud provider, not the customer. Accordingly, the Stratos Cloud Services AG arrangement does not give rise to a PE for Lumos in Germany.

No Dependent Agent. Meridian is an independent contractor and authorized reseller, not a dependent agent of Lumos. Under the Agreement, Meridian does not have, and is not granted, the authority to conclude contracts in Lumos's name. The reseller model — in which Meridian purchases subscription access from Lumos and independently resells to end users — is fundamentally distinct from an agency model in which the agent binds the principal. The Agreement expressly provides that Meridian acts on its own behalf and for its own account, not as an agent or representative of Lumos. Accordingly, Meridian does not constitute a dependent agent PE of Lumos in Germany under Article 5(5) of the Treaty or Section 13 of the Abgabenordnung ("AO").

No Employee PE. Henrik Dalmqvist, Vice President, EMEA Sales, is the Lumos executive responsible for overseeing the EMEA channel reseller program. Mr. Dalmqvist is based in Palo Alto, California, not in Germany. While Mr. Dalmqvist may travel to Germany from time to time for business meetings, trade shows, or partner events, such occasional visits do not create a PE under the Treaty or German domestic law, provided that he does not maintain a fixed place of business in Germany or habitually exercise authority to conclude contracts there.

Conclusion. We assess the PE risk in Germany as low based on the current structure and operational arrangements. However, we recommend ongoing monitoring to ensure that no changes arise that could create a PE — for example, if Lumos were to station employees in Germany for extended periods (generally, more than 183 days in a 12-month period), if Lumos were to lease office space in Germany, or if the Agreement were amended to grant Meridian agency-type authority to bind Lumos.

B. Withholding Tax in Other EMEA Jurisdictions

1. United Kingdom. Meridian Data Solutions UK Ltd, as the pre-approved sub-distributor for the United Kingdom and Ireland, will resell Lumos Prism™ subscriptions in those markets. The payment flow contemplated by the Agreement is that Meridian UK pays Meridian GmbH (as an intra-group payment for resold subscriptions), and Meridian GmbH in turn remits payments to Lumos. Lumos is not expected to receive direct payments from Meridian UK.

Under UK domestic law, withholding tax on royalty payments made by UK-resident entities to non-residents is imposed at a rate of 20% under the Income Tax Act 2007, Part 15, Chapter 2. However, consistent with the analysis above regarding the characterization of SaaS resale payments, payments for the purchase and resale of SaaS subscription access are not properly characterized as royalties under UK law. HMRC's published guidance on cloud computing and software-as-a-service confirms that payments for cloud-based services, where the recipient does not obtain a copyright license, are not royalties for UK tax purposes.

In addition, the U.S.-UK Double Taxation Convention provides a 0% withholding rate on royalties paid by a UK-resident entity to a U.S.-resident beneficial owner. Accordingly, even if the payment flow were restructured such that Meridian UK paid Lumos directly (rather than through Meridian GmbH), Treaty protection would apply and no UK withholding tax would be imposed.

We note that the intra-group payments from Meridian UK to Meridian GmbH (a UK-to-Germany payment) would not involve any U.S. withholding tax considerations but should be structured at arm's-length for transfer pricing purposes, a matter addressed in the Transfer Pricing Memorandum.

2. France. Meridian Data Solutions SARL, as the pre-approved sub-distributor for France, Belgium, Luxembourg, and French-speaking Switzerland, will resell Lumos Prism™ subscriptions in those markets. As with the UK, the payment flow is expected to be from Meridian France to Meridian GmbH, with Meridian GmbH remitting payments to Lumos.

Under French domestic law, withholding tax on royalty payments made by French-resident entities to non-residents is imposed at a rate of 25% (or 26.5% for certain categories of recipients) under the Code général des impôts ("CGI"). However, consistent with the analysis above, SaaS resale payments are not properly characterized as royalties under French law.

The U.S.-France Tax Treaty provides a 0% withholding rate on royalties (Article 12) and exempts business profits from French taxation in the absence of a permanent establishment (Article 7). Accordingly, whether the payments are characterized as business profits or royalties, the U.S.-France Tax Treaty provides full protection against French withholding tax.

As a practical matter, because the current payment flow does not involve direct payments from Meridian France to Lumos, the French withholding tax analysis is relevant only as a contingency in the event of a restructuring of the payment flow.

3. Other Key EMEA Markets. The EMEA Territory encompasses a broad range of jurisdictions beyond Germany, the United Kingdom, and France. As Meridian expands its resale activities into additional EMEA markets, jurisdiction-by-jurisdiction withholding tax analysis will be required. As a general observation, most EMEA countries have income tax treaties with the United States that provide reduced or zero withholding rates on royalties and exempt business profits from source-country taxation in the absence of a permanent establishment. A summary of applicable treaty rates for key EMEA jurisdictions is set forth in Appendix A to this memorandum.

We draw particular attention to jurisdictions within the EMEA Territory that may have limited treaty networks with the United States, or that have adopted aggressive withholding tax positions on payments related to software and digital services. Certain Middle Eastern and African countries, including but not limited to Saudi Arabia, Nigeria, Kenya, and Egypt, may impose withholding taxes on software-related payments that cannot be fully eliminated by treaty. As Meridian expands into these markets, we recommend conducting a pre-entry withholding tax analysis to identify and mitigate any withholding tax exposure before the commencement of sales activities.

C. U.S. Tax Considerations for Lumos

1. Foreign Tax Credit. In the event that German or other EMEA withholding taxes are imposed on payments to Lumos notwithstanding the Treaty protections described above — for example, due to a characterization dispute, an administrative processing delay, or the absence of a Treaty in a particular jurisdiction — Lumos may claim foreign tax credits under Internal Revenue Code ("IRC") Sections 901 and 903 to offset its U.S. federal income tax liability. Foreign tax credits are available for income, war profits, and excess profits taxes paid or accrued to foreign countries, subject to limitations based on the foreign tax credit limitation formula under IRC Section 904.

While the foreign tax credit mechanism provides an important backstop, we recommend that Lumos structure its payment flows to minimize withholding at source rather than relying on foreign tax credits. Source-country withholding reduces Lumos's available cash flow and introduces complexity in the U.S. tax compliance process, including the need to track and substantiate creditable foreign taxes, navigate the Section 904 limitation, and potentially carry forward or carry back unused credits.

2. FDII / GILTI Considerations. Lumos's income from foreign resale activities may qualify for the Foreign-Derived Intangible Income ("FDII") deduction under IRC Section 250, which provides an effective reduced U.S. federal income tax rate on certain income derived from sales and services to foreign markets. For taxable years beginning after December 31, 2025, the FDII deduction is scheduled to be 21.875% (down from the current 37.5%), resulting in an effective tax rate of approximately 16.406% on FDII (assuming a 21% corporate tax rate), compared to the standard 21% rate on non-FDII income.

To qualify for the FDII deduction, Lumos must establish that the reseller payments received from Meridian constitute either (a) income from property sold to a foreign person for foreign use or consumption, or (b) income from services provided to a person, or with respect to property, located outside the United States. The characterization of the payments — as consideration for the sale of SaaS subscription rights to Meridian (a foreign person) — supports FDII eligibility, but a detailed quantification analysis is required, including determination of Lumos's deemed tangible income return ("DTIR") and the allocation of deductions attributable to FDII.

We recommend that Lumos coordinate with its auditors, Whitmore Paige & Co. LLP (audit partner: Gregory Chen), and with Caldwell & Pryce, to perform the FDII quantification as part of the annual tax return preparation process. Given the significance of the Meridian reseller revenue ($4.5 million to $6.9 million annually) relative to Lumos's total ARR, the FDII benefit could be material.

We also note that GILTI (Global Intangible Low-Taxed Income) under IRC Section 951A is not directly relevant to the current structure, as Lumos does not have controlled foreign corporation ("CFC") subsidiaries in EMEA. However, if Lumos were to establish a foreign subsidiary (e.g., for direct sales operations in EMEA), GILTI considerations would become relevant and should be analyzed at that time.

IV. VAT / GST Analysis

A. Characterization of Lumos Prism™ for VAT Purposes

For purposes of the EU VAT system, the Lumos Prism™ SaaS platform is classified as an "electronically supplied service." This characterization is established by Council Directive 2006/112/EC (the "VAT Directive"), as amended, specifically Article 58, and by Council Implementing Regulation (EU) No. 282/2011, Article 7. Electronically supplied services are defined as services delivered over the Internet or an electronic network, the nature of which renders their supply essentially automated and involving minimal human intervention, and which are impossible to ensure in the absence of information technology.

The Lumos Prism™ platform — a cloud-based analytics and data intelligence tool accessed by end users through web browsers and APIs — Squarely falls within this definition. The supply of Lumos Prism™ subscriptions is not a supply of goods (no tangible property changes hands), and it is not a traditional service (it is delivered electronically and is essentially automated). The classification as an electronically supplied service triggers specific place-of-supply rules under the VAT Directive that differ from the rules applicable to traditional services and goods.

B. Place of Supply Rules — B2B Transactions

1. General Rule (Article 44 of the VAT Directive). Under the general rule for B2B supplies of services set forth in Article 44 of the VAT Directive, the place of supply of services provided to a taxable person (i.e., a business) is the place where the recipient is established. This general rule governs the place of supply for electronically supplied services in B2B transactions, as there is no specific derogation for such services in the B2B context.

Applying this rule to the parties and payment flows under the Agreement:

(a) Lumos to Meridian GmbH: The place of supply is Germany, where Meridian GmbH is established.

(b) Meridian GmbH to Meridian UK: The place of supply is the United Kingdom, where Meridian Data Solutions UK Ltd is established.

(d) Meridian (or sub-distributors) to business end users in EMEA: The place of supply is the country of establishment of the business end user.

The significance of the place-of-supply determination is that VAT is generally chargeable in the country where the supply is deemed to take place. However, as discussed below, the reverse charge mechanism shifts the obligation to account for VAT from the supplier to the recipient in cross-border B2B transactions.

2. Lumos's VAT Obligations. Lumos is a non-EU entity (a U.S. corporation) supplying B2B electronically supplied services to EU and UK business customers. Under the reverse charge mechanism set forth in Article 196 of the VAT Directive, when a non-EU supplier provides services to an EU business recipient, the recipient (not the supplier) is liable for VAT. The recipient self-assesses the applicable VAT on the supply received, reports it on its VAT return as both output tax and (to the extent the supply is used for taxable business purposes) input tax, resulting in a net zero cash VAT impact for the recipient.

The practical implications for Lumos are as follows:

(a) Lumos does not charge VAT on invoices to Meridian GmbH. The invoice should reflect the net amount of the resale consideration without any VAT component.

(b) Lumos's invoices to Meridian GmbH must include certain mandatory information: (i) a clear statement that the reverse charge applies (e.g., "Reverse charge: the customer is liable for VAT pursuant to Article 196 of Council Directive 2006/112/EC"); (ii) Meridian's VAT identification number (DE319274105); and (iii) a clear description of the services supplied.

(c) Lumos is not required to obtain a VAT registration in Germany, the United Kingdom, France, or any other EMEA jurisdiction solely for the purpose of making B2B supplies of electronically supplied services to Meridian and its sub-distributors. The reverse charge mechanism eliminates the need for the supplier to register and account for VAT in the recipient's jurisdiction.

The same reverse charge principle applies to supplies from Meridian GmbH to Meridian UK. Following the United Kingdom's departure from the European Union, the UK has retained the reverse charge mechanism under the Value Added Tax Act 1994, as amended. Meridian UK self-accounts for UK VAT (currently at the standard rate of 20%) on services received from Meridian GmbH. Similarly, for supplies from Meridian GmbH to Meridian France, the French reverse charge applies, and Meridian France self-accounts for French VAT (currently at the standard rate of 20%).

3. Intra-Group Sub-Distribution VAT Treatment. The intra-group payment flows between Meridian GmbH and its sub-distributors (Meridian UK and Meridian France) are themselves subject to VAT rules, as follows:

Meridian GmbH to Meridian UK. This is a cross-border B2B supply of electronically supplied services from a German entity to a UK entity. Post-Brexit, the UK is treated as a third country for EU VAT purposes. The UK reverse charge applies: Meridian UK self-accounts for UK VAT at the standard rate of 20% on the consideration paid to Meridian GmbH. Meridian GmbH issues a zero-rated invoice (for EU VAT purposes) or an invoice without VAT (for UK purposes).

Meridian GmbH to Meridian France. This is an intra-EU B2B supply of electronically supplied services from a German entity to a French entity. The French reverse charge applies under Article 196 of the VAT Directive: Meridian France self-accounts for French VAT at the standard rate of 20% on the consideration paid to Meridian GmbH. Meridian GmbH issues an invoice without VAT, noting that the reverse charge applies, and includes Meridian France's French VAT identification number.

Transfer Pricing. The intra-group pricing between Meridian GmbH and its sub-distributors must be set at arm's-length to comply with both transfer pricing requirements and VAT rules (which generally require that the taxable amount reflects the consideration actually received). The arm's-length pricing for these intra-group transactions has been analyzed in coordination with Caldwell & Pryce as part of the Transfer Pricing Memorandum.

C. B2C Considerations

1. End User Sales to Consumers. While the Agreement primarily contemplates the resale of Lumos Prism™ subscriptions to enterprise customers (i.e., B2B sales), it is possible that Meridian or its sub-distributors may sell subscriptions to non-business end users (consumers), particularly in certain market segments where individual professionals or small business operators may purchase subscriptions for personal use. If such business-to-consumer ("B2C") sales occur, different VAT rules apply.

For B2C sales of electronically supplied services, Article 58 of the VAT Directive provides that the place of supply is the place where the customer (consumer) is established, has a permanent address, or usually resides. This means that Meridian (or the relevant sub-distributor), as the supplier to the end user, must charge and account for VAT at the rate applicable in the end user's member state of residence, not in the supplier's own member state.

One Stop Shop (OSS) Mechanism. To simplify compliance with multi-jurisdictional VAT obligations arising from B2C cross-border sales of electronically supplied services, the EU has established the One Stop Shop ("OSS") mechanism. Under the OSS, a supplier may register for the OSS in a single EU member state (the "member state of identification") and file a single quarterly VAT return covering all B2C supplies of electronically supplied services made to consumers in other EU member states. The member state of identification then distributes the VAT collected to the relevant member states of consumption. Meridian GmbH may register for the OSS in Germany to manage its B2C VAT obligations across the EU from a single registration point.

UK Equivalent. Following Brexit, the UK no longer participates in the EU OSS system. The UK previously operated a Non-Union VAT MOSS (Mini One Stop Shop) scheme, which has been replaced by direct UK VAT registration requirements for non-UK suppliers making B2C supplies of digital services to UK consumers. If Meridian UK makes B2C sales within the UK, it accounts for UK VAT through its standard UK VAT registration.

2. Practical Recommendation. We recommend that Lumos confirm with Meridian's General Counsel, Dr. Anneliese Brandt, and with Katarina Voss (who serves as Chief Commercial Officer of Meridian UK), whether end users include any B2C customers. If B2C sales are anticipated, Meridian should ensure that it has an OSS registration in place in Germany prior to the commencement of sales activities, and that Meridian UK has appropriate UK VAT procedures in place. The Channel Reseller Program Agreement contemplates enterprise software subscriptions and is primarily a B2B channel, but the possibility of consumer sales cannot be excluded, particularly in markets where individual practitioners and sole proprietors may purchase subscriptions.

D. VAT on Escrow Holdback Payments

The 5% escrow holdback on quarterly payments, which is directed to Evergreen Trust Company, N.A. (a U.S. entity), forms part of the overall consideration from Meridian to Lumos for the supply of SaaS subscription resale rights. The fact that a portion of the consideration is held in escrow pending the resolution of potential indemnification claims does not alter the VAT treatment of the underlying supply.

For VAT purposes, the taxable amount is the total consideration payable by Meridian to Lumos, including the escrow holdback portion. The reverse charge mechanism applies to the full amount: Meridian self-accounts for German VAT on the gross payment (including the holdback), not merely on the net amount actually remitted to Lumos's primary bank account at Pinnacle National Bank, N.A. This treatment is consistent with the principle that VAT is chargeable on the full consideration for the supply, regardless of the timing or mechanics of payment.

No separate VAT implications arise from the escrow arrangement itself, as the escrow is a payment mechanism and security arrangement, not a separate supply of services.

E. VAT Registration Requirements for Lumos

As discussed above, under the reverse charge mechanism, Lumos is not required to register for VAT in Germany, the United Kingdom, France, or other EMEA jurisdictions solely on the basis of its B2B supplies of electronically supplied services to Meridian and its sub-distributors. This is a significant administrative advantage of the current structure.

However, we note that a VAT registration obligation could arise if Lumos provides any direct services to EMEA end users outside the reseller channel. For example, if Lumos were to provide training sessions, implementation support, professional services, or consulting directly to Meridian's end users (rather than through Meridian as the reseller), such direct supplies could trigger a VAT registration obligation in the jurisdiction where the end user is located, depending on the nature and characterization of the services.

We recommend that Lumos monitor its direct activities in EMEA, particularly those conducted by Henrik Dalmqvist, VP EMEA Sales, and consult with Thornbridge Whitaker LLP (partner: Alistair Drummond) regarding any potential UK VAT registration triggers. As the EMEA channel program scales, the likelihood of Lumos personnel engaging directly with end users may increase, and proactive monitoring is essential to avoid inadvertent non-compliance with local VAT registration requirements.

V. Withholding Tax on Late Payment Interest

The Channel Reseller Program Agreement provides for late payment interest at a rate of 1.5% per month, equivalent to 18% per annum, compounded monthly. To the extent that Meridian incurs and pays late payment interest to Lumos, the withholding tax treatment of such interest must be considered separately from the treatment of the principal resale payments.

German Domestic Law. Under German domestic law, withholding on interest paid to non-residents is generally governed by Sections 49 and 50a EStG. The EU Interest and Royalties Directive (Council Directive 2003/49/EC) provides for a 0% withholding rate on interest and royalty payments made between associated companies of different EU member states. However, this directive is applicable only to payments between qualifying EU entities. Since Lumos is a U.S. corporation (not an EU entity), the Interest and Royalties Directive does not apply to interest payments from Meridian GmbH to Lumos.

U.S.-Germany Tax Treaty — Article 11 (Interest). Article 11 of the Treaty provides that interest arising in a Contracting State (Germany) and beneficially owned by a resident of the other Contracting State (the United States) shall be taxable only in the United States. In other words, the Treaty provides a 0% withholding rate on interest, which overrides any domestic withholding obligation. To claim this benefit, Lumos must satisfy the same Treaty eligibility requirements described in Section III.A.2 above — U.S. tax residence, beneficial ownership, and Limitation on Benefits compliance — and Meridian must maintain appropriate documentation (IRS Form 6166 and, ideally, a Freistellungsbescheinigung covering interest as well as the principal payments).

Conclusion. No German withholding tax should apply to late payment interest paid by Meridian to Lumos, provided that the Treaty compliance and documentation requirements are satisfied. We recommend that the Freistellungsbescheinigung application filed by Meridian with the BZSt expressly cover both the principal resale payments and any late payment interest, to ensure comprehensive withholding tax exemption at source.

VI. Transfer Pricing Considerations (Cross-Reference)

A comprehensive transfer pricing analysis of the reseller arrangement between Lumos and Meridian is set forth in the separate Transfer Pricing Overview Memorandum prepared by Leila Nazari and coordinated with Caldwell & Pryce Advisory LLC (Ingrid Svensson, Managing Director). This Section VI provides a summary cross-reference to the key conclusions of that analysis and highlights the transfer pricing considerations that intersect with the withholding tax and VAT analysis contained in this memorandum.

Arm's-Length Pricing. The 30% reseller discount off Lumos's published EMEA list prices has been benchmarked using the Comparable Uncontrolled Price ("CUP") method against comparable EMEA SaaS distribution arrangements. The CUP analysis identified a range of reseller discounts in the EMEA enterprise software market of approximately 20% to 40%, with an interquartile range of 25% to 35%. The 30% discount falls within the interquartile range and is confirmed as arm's-length by the Caldwell & Pryce memorandum dated March 15, 2024.

OECD Compliance. The transfer pricing analysis is consistent with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 edition), which establish the arm's-length principle as the international standard for transfer pricing.

German Documentation Requirements. Under Section 90(3) of the Abgabenordnung ("AO") and the Gewinnabgrenzungsaufzeichnungsverordnung ("GAufzV"), German taxpayers are required to maintain transfer pricing documentation in the form of a local file and a master file. Although Lumos and Meridian are not related parties (Lumos holds no equity in Meridian, and there is no common ownership between the two entities), German tax authorities may scrutinize the pricing of the reseller arrangement if Lumos provides volume rebates, marketing development funds, co-marketing support, or other economic benefits that effectively reduce the net price paid by Meridian below arm's-length levels. Accordingly, we recommend that:

(a) Meridian maintain local file and master file documentation supporting the arm's-length nature of the reseller discount, including the CUP benchmarking analysis and any supporting comparable data.

(b) Lumos maintain contemporaneous documentation supporting the arm's-length nature of the reseller discount on its side, including the rationale for the 30% discount, the competitive landscape for EMEA SaaS distribution, and any volume-related adjustments.

(c) Both parties retain copies of the Caldwell & Pryce memorandum dated March 15, 2024, as primary evidentiary support for the arm's-length characterization.

We note that the transfer pricing analysis and documentation are relevant not only for income tax purposes but also for VAT purposes, as the arm's-length pricing of intra-group transactions between Meridian GmbH and its sub-distributors (Meridian UK and Meridian France) affects the taxable amount for VAT on those intra-group supplies.

VII. Structuring Recommendations to Minimize Tax Leakage

Based on the analysis set forth in Sections III through VI above, we recommend the following structuring and compliance measures to minimize tax leakage across the Lumos/Meridian EMEA channel reseller arrangement.

A. Payment Flow Optimization

The direct payment flow from Meridian GmbH to Lumos (U.S.) is the simplest and most tax-efficient structure. By channeling all payments through a single point of remittance (Meridian GmbH), the arrangement avoids the creation of multiple withholding tax touchpoints across different EMEA jurisdictions and simplifies withholding tax compliance.

Sub-distributors (Meridian Data Solutions UK Ltd and Meridian Data Solutions SARL) should pay Meridian GmbH for the Lumos Prism™ subscriptions they resell, rather than paying Lumos directly. This preserves the single payment channel from Meridian GmbH to Lumos and ensures that the withholding tax analysis is concentrated in Germany, where the Treaty provides comprehensive protection.

All amounts under the Agreement are denominated in U.S. dollars, and Meridian bears the full foreign exchange risk. No tax structuring changes are required with respect to the currency denomination or FX risk allocation.

B. Treaty Compliance Documentation

Proper documentation is essential to ensuring that the Treaty-based withholding tax exemptions are implemented at source and to defending the position in the event of a German tax audit. We recommend the following:

(a) IRS Form 6166. Lumos should obtain an IRS Form 6166 (Certificate of U.S. Tax Residence) on an annual basis and provide the original to Meridian's finance or tax department promptly. The Form 6166 should be requested from the IRS at least 45 to 60 days before the beginning of each calendar year to ensure timely availability.

(b) Freistellungsbescheinigung. Meridian should file an application with the German Bundeszentralamt für Steuern for a Freistellungsbescheinigung covering both the principal resale payments and any late payment interest. The application should be filed as soon as practicable and renewed as required (typically every three years, subject to BZSt processing times).

(c) Beneficial Ownership and LOB Records. Both parties should maintain records demonstrating Lumos's beneficial ownership of the income and compliance with the LOB provisions of Article 28 of the Treaty. This includes organizational charts, ownership records, financial statements, and documentation of Lumos's active trade or business in the United States.

C. Invoicing Best Practices

The invoices issued by Lumos to Meridian GmbH are the primary transactional documentation and should be prepared with care to support the withholding tax and VAT positions outlined in this memorandum. We recommend that Lumos's invoices include the following elements:

(a) A clear description of the services supplied, using language consistent with the resale of SaaS subscription access (e.g., "Resale of Lumos Prism™ SaaS subscription access — EMEA Channel Reseller Program") rather than language that could be construed as an intellectual property license (e.g., avoid terms such as "license fee," "royalty," or "IP license").

(b) A statement that the reverse charge applies for VAT purposes (e.g., "Reverse charge: the customer is liable for VAT pursuant to Article 196 of Council Directive 2006/112/EC").

(d) No VAT charged by Lumos. The invoice should reflect a net amount without any VAT component.

(e) A reference to the U.S.-Germany Tax Treaty as the basis for the 0% withholding rate (e.g., "Withholding tax: 0% pursuant to Article 7 / Article 12 of the U.S.-Germany Income Tax Treaty").

Similarly, Meridian's invoices to its sub-distributors and end users should reflect the applicable local VAT obligations, including the reverse charge mechanism for intra-group B2B supplies and appropriate VAT charging for direct sales to end users.

D. Monitoring and Ongoing Compliance

The tax landscape for cross-border SaaS distribution is evolving, and ongoing compliance monitoring is essential. We recommend the following:

(a) Annual Withholding Tax Review. Conduct an annual review of withholding tax positions as Meridian expands into new EMEA jurisdictions. Each new jurisdiction should be analyzed for domestic withholding tax rates, applicable tax treaty protections, LOB provisions, and administrative documentation requirements.

(b) Legislative Monitoring. Monitor changes in German tax law (including any revisions to the EStG or BMF guidance on the characterization of SaaS payments), EU VAT rules (including the EU's "VAT in the Digital Age" or "ViDA" proposals, which may introduce significant changes to the VAT treatment of digital platform operators), and U.S. tax treaty developments (including any renegotiation of existing treaties or entry into new treaty relationships).

(c) FDII Coordination. Coordinate with Caldwell & Pryce Advisory LLC on the quantification of Lumos's FDII deduction for each tax year, incorporating the Meridian reseller revenue into the FDII calculation.

(d) Audit and Financial Reporting. Coordinate with Whitmore Paige & Co. LLP (Gregory Chen, Audit Partner) on the financial statement and audit implications of the withholding tax and VAT positions, including appropriate disclosures in Lumos's audited financial statements.

(e) UK Post-Brexit Developments. Coordinate with Thornbridge Whitaker LLP (Alistair Drummond) on any UK regulatory or tax changes arising from the post-Brexit environment that may affect the withholding tax or VAT treatment of supplies to or through Meridian Data Solutions UK Ltd.

VIII. Risk Factors and Caveats

The analysis and recommendations set forth in this memorandum are subject to the following risk factors and caveats, which Lumos should consider in evaluating its overall tax posture with respect to the EMEA Channel Reseller Program:

Recharacterization Risk. The principal risk identified in this memorandum is the possibility that German tax authorities could recharacterize the SaaS resale payments from Meridian to Lumos as royalties rather than business profits. Such a recharacterization would, under German domestic law, subject the payments to a 15.825% withholding tax under Section 50a EStG. However, this risk is significantly mitigated by two factors: (i) the contract structure, which does not grant Meridian any IP license, source code access, or modification rights, strongly supports the business profits characterization; and (ii) even if the payments were recharacterized as royalties, the Treaty provides a 0% withholding rate on royalties under Article 12, resulting in no incremental tax cost. The primary consequence of a recharacterization would be an administrative burden (the need to apply for and document the Treaty-based exemption specifically as a royalty reduction rather than as a business profits exemption), not a cash tax cost.

Permanent Establishment Risk. The PE risk assessment set forth in Section III.A.3 above concludes that Lumos does not currently have a permanent establishment in Germany. This assessment is based on the current structure and operations. The PE risk would increase materially if: (i) Lumos were to station employees in Germany on a long-term or permanent basis; (ii) Lumos were to lease or acquire office space in Germany; (iii) the Agreement were amended to grant Meridian agency-type authority to conclude contracts binding on Lumos; or (iv) Lumos were to exercise direct operational control over the Stratos Cloud Services AG Frankfurt data center. Any of these developments should be flagged to Calderwood & Harkness for reassessment of the PE analysis.

EU Pillar Two — Global Minimum Tax. The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting ("BEPS") has introduced Pillar Two, which establishes a global minimum effective tax rate of 15% for multinational enterprise groups with consolidated annual revenues of at least €750 million. Lumos, with $187.4 million in ARR, is currently below the €750 million consolidated revenue threshold for Pillar Two applicability. However, Crestline Capital Partners, LP (as the private equity sponsor holding 62.3% of Lumos's equity) may have portfolio companies that, when aggregated, could approach or exceed the threshold. Additionally, Lumos's growth trajectory should be monitored — if Lumos's consolidated revenue (including revenue from affiliated entities, if any) approaches the €750 million threshold, Pillar Two compliance obligations may arise, including top-up tax calculations and qualified domestic minimum top-up tax ("QDMTT") considerations.

OECD BEPS Developments. Ongoing work by the OECD/G20 Inclusive Framework on Amount A (a new taxing right that would reallocate a portion of residual profits to market jurisdictions) and Amount B (a simplified transfer pricing approach for baseline marketing and distribution activities) may affect future withholding tax, nexus, and transfer pricing rules applicable to the Lumos/Meridian arrangement. Additionally, several EMEA jurisdictions have enacted or are considering unilateral digital services taxes ("DSTs") that impose levies on revenue derived fr

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressees identified herein and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO: Daniel Ostroff, Vice President, Legal & Compliance, Lumos Analytics Inc. Marcus Ellenberg, Chief Financial Officer, Lumos Analytics Inc.
FROM: Leila Nazari, Associate, Tax, Calderwood & Harkness LLP Robert Jansen, Associate, Tax, Calderwood & Harkness LLP
DATE: March 15, 2024
RE: Tax Structuring Memorandum — Withholding Tax & VAT Considerations for the EMEA Channel Reseller Program Agreement between Lumos Analytics Inc. and Meridian Data Solutions GmbH
Matter No.: 1008-00010
CC: Howard Bellamy, Partner, Calderwood & Harkness LLP Ingrid Svensson, Managing Director, Caldwell & Pryce Advisory LLC
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I. Executive Summary
This memorandum analyzes the withholding tax implications on cross-border payments from Meridian Data Solutions GmbH ("Meridian" or "Meridian GmbH"), a German limited liability company, to Lumos Analytics Inc. ("Lumos" or the "Company"), a Delaware C-Corporation headquartered in Palo Alto, California, under the EMEA Channel Reseller Program Agreement (the "Agreement"). In addition, this memorandum addresses the value added tax ("VAT") treatment of the resale of Lumos Prism™ software-as-a-service ("SaaS") subscriptions across the Europe, Middle East, and Africa territory (the "EMEA Territory").
The Agreement contemplates a total contract value of $30,000,000 over a five-year initial term commencing April 1, 2024 and terminating March 31, 2029. The Minimum Annual Commitment ("MAC") schedule is structured as follows: Year 1 — $4,500,000; Year 2 — $5,400,000; Year 3 — $6,300,000; Year 4 — $6,900,000; and Year 5 — $6,900,000. Meridian will receive a 30% reseller discount off Lumos's published EMEA list prices. All payments under the Agreement are denominated in U.S. dollars, and Meridian bears all foreign exchange risk associated with the conversion of local currency revenue into U.S. dollars for settlement purposes.
The payment flow under the Agreement is structured such that Meridian pays Lumos on a quarterly basis via wire transfer from Zarvenische Handelsbank AG (relationship manager: Thomas Weidner) to Pinnacle National Bank, N.A. (relationship manager: David Okonkwo), with a 5% holdback on each quarterly payment directed to Evergreen Trust Company, N.A. (escrow officer: Maria Gutierrez) to secure potential indemnification claims under the Agreement.
This memorandum has been coordinated with Caldwell & Pryce Advisory LLC ("Caldwell & Pryce"), where Ingrid Svensson, Managing Director, has prepared a companion transfer pricing memorandum dated March 15, 2024 (the "Transfer Pricing Memorandum"). The Transfer Pricing Memorandum confirms that the 30% reseller discount reflects arm's-length pricing, as validated through the Comparable Uncontrolled Price ("CUP") method, consistent with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 edition).
Our key conclusions are as follows:
1. Withholding Tax — Business Profits / Royalties. The U.S.-Germany Income Tax Treaty (the "Treaty") reduces withholding on royalties to 0% for payments properly characterized as software resale consideration. We believe the stronger position is that Meridian's payments to Lumos constitute business profits under Article 7 of the Treaty, which are taxable only in the United States absent a German permanent establishment. Even if German tax authorities were to recharacterize the payments as royalties, Article 12 of the Treaty provides a 0% withholding rate. In either case, no German withholding tax should apply, provided appropriate documentation is maintained.
2. VAT — Reverse Charge Mechanism. Under the EU VAT Directive (Council Directive 2006/112/EC) and its implementing regulations, the reverse charge mechanism applies to business-to-business ("B2B") cross-border supplies of electronically supplied services, including SaaS subscriptions. Meridian GmbH, as the business recipient, is responsible for self-assessing and accounting for German VAT on supplies received from Lumos. Lumos is not required to register for VAT in Germany or other EMEA jurisdictions solely for these B2B supplies.
3. Structuring Recommendations. We set forth below certain recommendations designed to minimize tax leakage, including documentation of Treaty benefits, optimized invoicing practices, and ongoing compliance monitoring as Meridian expands its territorial coverage within EMEA.
II. Background and Transaction Structure
A. Parties and Roles
Lumos Analytics Inc. Lumos is a Delaware C-Corporation (Employer Identification Number: 84-3291056) with its principal offices located at 4700 Sandhill Road, Suite 300, Palo Alto, California 94304. Lumos's registered agent for service of process in Delaware is Pacific Registered Agents LLC, located at 1209 Orange Street, Wilmington, Delaware 19801. Lumos is the developer and licensor of the Lumos Prism™ platform, a cloud-based analytics and data intelligence SaaS solution. Under the Agreement, Lumos grants Meridian a non-exclusive right to resell Lumos Prism™ SaaS subscriptions within the EMEA Territory. For the fiscal year ended December 31, 2023, Lumos reported annual recurring revenue ("ARR") of approximately $187.4 million. Lumos is majority-owned, with 62.3% of its outstanding equity held by Crestline Capital Partners, LP, a growth-equity private equity fund. The key contacts at Crestline Capital Partners, LP are Jonathan Whitfield, Managing Partner, and Rebecca Solari, Portfolio Operations Partner.
Meridian Data Solutions GmbH. Meridian is a Gesellschaft mit beschränkter Haftung (GmbH) organized under the laws of the Federal Republic of Germany, registered with the Amtsgericht München (Munich Commercial Register) under registration number HRB 274581. Meridian's registered office is located at Leopoldstraße 78, 80802 München, Germany. Meridian's German tax identification number (Steuernummer) is 143/117/60253, and its VAT identification number is DE319274105. Under the Agreement, Meridian serves as an authorized, non-exclusive reseller of Lumos Prism™ SaaS subscriptions in the EMEA Territory. For the fiscal year ended December 31, 2023, Meridian reported total revenue of approximately €312 million. Meridian's managing director (Geschäftsführer) is Florian Eckstein, and its General Counsel is Dr. Anneliese Brandt.
Pre-Approved Sub-Distributors. The Agreement designates two pre-approved sub-distributors through which Meridian may resell Lumos Prism™ subscriptions in specific sub-territories:
(a) Meridian Data Solutions UK Ltd (Companies House Registration No. 12847391), with its registered office at 14 Fenchurch Place, London EC3M 5AJ, United Kingdom. The sole director is Katarina Voss. Meridian UK is authorized to resell in the United Kingdom and Ireland.
(b) Meridian Data Solutions SARL (SIREN 912 483 057), with its registered office at 27 Rue de la Boétie, 75008 Paris, France. The managing director (Gérant) is Jean-Philippe Moreau. Meridian France is authorized to resell in France, Belgium, Luxembourg, and French-speaking Switzerland.
Both sub-distributors are wholly-owned subsidiaries of Meridian GmbH and operate pursuant to sub-distribution agreements that mirror the material terms of the primary Agreement.
B. Payment Structure
The payment structure under the Agreement is summarized as follows:
Reseller discount. Meridian purchases Lumos Prism™ SaaS subscriptions at a 30% discount off Lumos's published EMEA list prices. The discount is applied uniformly across all product tiers and subscription terms.
Minimum Annual Commitment Schedule. The Agreement imposes a MAC schedule that requires Meridian to achieve minimum aggregate annual purchase volumes as follows:
The aggregate MAC across the five-year initial term totals $30,000,000, reconciled as $4,500,000 + $5,400,000 + $6,300,000 + $6,900,000 + $6,900,000 = $30,000,000.
Payment Terms. All invoices are payable net 45 days from the invoice date. Late payment interest accrues at a rate of 1.5% per month, which equates to 18% per annum, compounded monthly.
Escrow Holdback. The Agreement provides for a 5% escrow holdback on all quarterly payments. The holdback amounts are directed to Evergreen Trust Company, N.A. (escrow officer: Maria Gutierrez) and are held in escrow to secure Meridian's potential indemnification obligations under the Agreement. By way of illustration, the Year 1 quarterly holdback is calculated as follows: $4,500,000 annual MAC ÷ 4 quarters = $1,125,000 per quarter × 5% = $56,250 per quarter.
Currency. All amounts payable under the Agreement are denominated in United States dollars. Meridian bears the full risk of foreign exchange fluctuations between the euro (or other local currencies in which Meridian collects revenue from end users) and the U.S. dollar.
C. Nature of Payments
The characterization of payments flowing from Meridian to Lumos is the threshold question for withholding tax analysis. We analyze this characterization as follows:
Resale Consideration, Not Royalty Payments. The payments made by Meridian to Lumos represent consideration for the right to resell SaaS subscriptions — that is, the right to purchase and redistribute subscription access to the Lumos Prism™ platform to end users in the EMEA Territory. Critically, the payments do not constitute royalties for the use of, or the right to use, Lumos's intellectual property. This distinction is fundamental to the withholding tax analysis because royalties paid to non-resident entities are generally subject to withholding tax under German domestic law, whereas business profits from the purchase and resale of services are not.
No intellectual Property License Granted. The Agreement does not grant Meridian a license to use, reproduce, modify, or create derivative works of the underlying Lumos Prism™ software code. Meridian does not receive access to the source code of Lumos Prism™ at any time. Meridian merely acts as an authorized reseller, facilitating end user access to the Lumos Prism™ platform through SaaS subscription agreements between Lumos and the end users. The subscription access itself is delivered electronically by Lumos via its cloud infrastructure; Meridian's role is limited to sales, marketing, and customer relationship management.
Ancillary Trademark License. Exhibit D to the Agreement grants Meridian a limited, non-exclusive, non-transferable trademark license to use the Lumos and Lumos Prism™ trade names and logos in connection with authorized marketing and resale activities. This trademark license is purely ancillary to the primary resale arrangement and does not constitute a separate royalty stream. The trademark license does not grant Meridian any ownership rights in, or independent right to exploit, Lumos's trademarks. The license is coterminous with the Agreement and terminates automatically upon expiration or termination of the Agreement.
No Modification Rights; Feedback License. Meridian has no right to modify, adapt, or customize the Lumos Prism™ platform. To the extent Meridian provides feedback, suggestions, or enhancement requests to Lumos, the Agreement provides that such feedback is licensed from Meridian to Lumos (not the reverse), and Lumos retains all rights to incorporate such feedback into future product releases without compensation to Meridian. This feedback license further reinforces the conclusion that the flow of intellectual property rights runs from Meridian to Lumos, not from Lumos to Meridian, which is inconsistent with a royalty characterization of Meridian's payments.
III. Withholding Tax Analysis
A. German Withholding Tax on Payments to U.S. Entities
1. German Domestic Law — Characterization of SaaS Resale Payments. Under German domestic tax law, as codified principally in the Einkommensteuergesetz ("EStG") and the Körperschaftsteuergesetz ("KStG"), withholding tax applies to certain categories of payments made by German-resident entities to non-resident recipients. The relevant provisions are as follows:
Section 49(1) No. 2 EStG — Commercial Activities. Income from commercial activities (Einkünfte aus Gewerbebetrieb) earned by a non-resident in Germany is subject to German limited tax liability (beschränkte Steuerpflicht) only if the non-resident maintains a permanent establishment (Betriebsstätte) or a permanent representative (ständiger Vertreter) in Germany. As discussed in Section III.A.3 below, Lumos does not maintain any physical presence, employees, or fixed base in Germany. The EMEA data hosting for Lumos Prism™ is provided by Stratos Cloud Services AG at its Frankfurt data center, but this arrangement involves a third-party cloud service provider operating its own infrastructure. Lumos does not own, lease, or exercise operational control over the physical servers. Accordingly, Lumos does not have a permanent establishment in Germany under Section 49(1) No. 2 EStG, and this provision does not give rise to German taxing jurisdiction over Lumos's business profits.
Section 49(1) No. 6 EStG and Section 50a EStG — Withholding on Royalties. German domestic law imposes withholding tax on royalty payments made by German-resident entities to non-resident recipients. Under Section 50a(1) No. 3 EStG, the payor must withhold tax at a rate of 15% (plus the 5.5% solidarity surcharge on the withholding tax amount, resulting in an effective combined rate of 15.825%) on the gross amount of royalty payments. For purposes of this provision, "royalties" include payments for the use of, or the right to use, copyrights, patents, trademarks, designs, plans, secret formulas, or other intellectual property.
Key Question: Royalty or Business Profit? The central question under German domestic law is whether the payments from Meridian to Lumos are characterized as royalty payments (for the use of or the right to use intellectual property) or as business profits from the purchase and resale of services. If the payments are royalties, the 15.825% withholding rate under Section 50a EStG applies as a starting point (subject to Treaty reduction). If the payments are business profits, no withholding obligation arises under German domestic law (absent a permanent establishment).
Analysis. We conclude that the payments made by Meridian to Lumos are properly characterized as consideration for the purchase and resale of SaaS subscription access, not as royalties for the use of intellectual property. This conclusion is supported by several factors:
(a) Meridian does not obtain a copyright license. The Agreement does not grant Meridian any right to reproduce, copy, distribute, or publicly perform the Lumos Prism™ software. Meridian does not receive a copy of the software in any form, whether in source code or object code.
(b) Meridian does not reproduce software. The SaaS model is inherently different from traditional software licensing. End users access Lumos Prism™ through a web browser or API interface; no software is downloaded, installed, or reproduced on Meridian's or the end user's local systems (other than browser-cached elements that are incidental to the SaaS delivery model).
(c) Meridian merely resells access. Meridian's role is that of a reseller — it purchases subscription access from Lumos at a discounted price and resells that access to end users at the EMEA list price (or such other price as Meridian determines, subject to any applicable minimum advertised price guidelines). The economic substance of the arrangement is a buy-sell transaction for services, not a license of intellectual property.
(d) No modification rights. Meridian has no right to modify, adapt, or create derivative works of the Lumos Prism™ platform, which further distinguishes the arrangement from a software license that would give rise to royalty income.
(e) Feedback license runs from Meridian to Lumos. The direction of the intellectual property license (feedback from Meridian to Lumos) is the reverse of what would be expected in a royalty-bearing arrangement.
German tax authorities, including the Bundesfinanzhof (Federal Tax Court or "BFH") and the Bundesministerium der Finanzen ("BMF"), have increasingly recognized the distinction between SaaS-type arrangements and traditional software licensing for withholding tax purposes. While German administrative guidance has historically been cautious, the growing body of BFH case law and BMF circulars supports the position that payments for cloud-based software services do not constitute royalties where the recipient does not obtain a copyright license or the right to use the underlying intellectual property.
Conclusion. We believe there is a strong position that payments from Meridian to Lumos are characterized as business profits under German domestic law, not as royalties subject to withholding under Section 50a EStG. However, there is residual risk that German tax authorities could seek to recharacterize the payments as royalties, particularly if the structure of the arrangement changes in ways that blur the distinction between resale consideration and royalty income (e.g., if Meridian were granted access to source code or modification rights). As discussed below, this risk is mitigated by Treaty protection.
2. U.S.-Germany Income Tax Treaty (Convention for the Avoidance of Double Taxation). The United States and the Federal Republic of Germany are parties to a Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed June 29, 1989, with a protocol signed June 1, 2006 (collectively, the "Treaty"). The Treaty provides the following protections relevant to the payment flows under the Agreement:
Article 7 — Business Profits. Under Article 7 of the Treaty, business profits of an enterprise of a Contracting State (in this case, the United States) are taxable only in that State, unless the enterprise carries on business in the other Contracting State (Germany) through a permanent establishment situated therein. If the enterprise does carry on business through a permanent establishment, the profits of the enterprise may be taxed in Germany, but only so much of them as is attributable to that permanent establishment. As established in Section III.A.3 below, Lumos does not have a permanent establishment in Germany. Accordingly, if the payments from Meridian to Lumos are properly characterized as business profits, Article 7 shields those profits from German taxation entirely, and no withholding tax applies.
Article 12 — Royalties. Under Article 12 of the Treaty, royalties arising in a Contracting State (Germany) and beneficially owned by a resident of the other Contracting State (the United States) shall be taxable only in the United States. In other words, the Treaty provides a 0% withholding rate on royalties, eliminating the 15.825% domestic withholding rate that would otherwise apply under Section 50a EStG. For purposes of Article 12, the term "royalties" includes payments of any kind received as consideration for the use of, or the right to use, any copyright, patent, trademark, design, plan, secret formula, or process, or for information concerning industrial, commercial, or scientific experience.
Practical Effect — Belt and Suspenders. The practical significance of the Treaty for the arrangement between Lumos and Meridian is that, regardless of whether the payments are characterized as business profits or as royalties, the Treaty eliminates German withholding tax:
(a) If payments are business profits: Article 7 applies, and Germany has no taxing jurisdiction (no PE). Withholding rate: 0%.
(b) If payments are royalties: Article 12 applies, and the Treaty reduces the withholding rate to 0%. Withholding rate: 0%.
This "belt and suspenders" analysis provides significant comfort that no German withholding tax will apply to the payment flows under the Agreement, irrespective of the characterization debate.
Requirements for Treaty Benefits. To claim the benefits of the Treaty, the following conditions must be satisfied:
(a) U.S. Tax Residence. Lumos must be a "resident" of the United States for purposes of the Treaty. As a corporation organized under the laws of the State of Delaware, with its principal place of management and business in Palo Alto, California, and subject to U.S. federal income tax on its worldwide income, Lumos clearly satisfies the U.S. residency requirement.
(b) Beneficial Ownership. Lumos must be the "beneficial owner" of the income received from Meridian. As the direct recipient and economic beneficiary of the resale payments — with no interposed conduit entities — Lumos satisfies the beneficial ownership requirement.
(c) Limitation on Benefits (LOB). Article 28 of the Treaty contains a Limitation on Benefits provision designed to prevent "treaty shopping" by entities that do not have a genuine connection to the United States. Lumos, as a substantial operating company with $187.4 million in ARR and active business operations in the United States, satisfies the "active trade or business" test under Article 28(3). In addition, Lumos's majority ownership by Crestline Capital Partners, LP, a U.S. limited partnership, supports the conclusion that Lumos's ownership structure does not present LOB concerns. We note that a detailed LOB analysis should be refreshed annually to account for any changes in Lumos's ownership or business activities.
Administrative Requirements. To implement the Treaty-based withholding exemption at source, the following administrative steps are required:
(a) Lumos should obtain a Certificate of U.S. Tax Residence (IRS Form 6166) from the Internal Revenue Service. This form serves as official confirmation of Lumos's status as a U.S. tax resident for Treaty purposes. Form 6166 should be obtained on an annual basis to ensure that Meridian has current documentation on file.
(b) Meridian should file an application for a Freistellungsbescheinigung (withholding tax exemption certificate) with the German Bundeszentralamt für Steuern ("BZSt"). The Freistellungsbescheinigung authorizes Meridian to make payments to Lumos without applying withholding tax at source, rather than requiring Lumos to seek a refund of withheld amounts after the fact. The application typically requires submission of the IRS Form 6166, a copy of the Agreement, and a description of the payment characterization.
We strongly recommend that both Lumos and Meridian complete these administrative steps prior to the first quarterly payment under the Agreement, which is anticipated to be due in or around mid-May 2024 (assuming an invoice date of April 1, 2024, with net 45-day payment terms).
3. Permanent Establishment Risk Assessment. The absence of a German permanent establishment is a critical predicate for the withholding tax analysis under both German domestic law and the Treaty. We have assessed the PE risk as follows:
No Physical Presence. Lumos does not maintain any offices, facilities, warehouses, or other fixed places of business in Germany. Lumos has no employees based in Germany, and no Lumos personnel are stationed in or regularly travel to Germany for business purposes.
Data Center — Stratos Cloud Services AG. Lumos Prism™ utilizes data hosting services provided by Stratos Cloud Services AG at its Frankfurt, Germany data center. However, the data center is owned, operated, and controlled by Stratos Cloud Services AG, an independent third-party cloud infrastructure provider. Lumos does not own, lease, or exercise control over the physical servers at the Frankfurt data center. Under the OECD Model Tax Convention commentary (2017, Commentary on Article 5, paragraphs 122-131), a server used by a third-party cloud provider does not constitute a permanent establishment of the customer using the cloud services. The server is at the disposal of the cloud provider, not the customer. Accordingly, the Stratos Cloud Services AG arrangement does not give rise to a PE for Lumos in Germany.
No Dependent Agent. Meridian is an independent contractor and authorized reseller, not a dependent agent of Lumos. Under the Agreement, Meridian does not have, and is not granted, the authority to conclude contracts in Lumos's name. The reseller model — in which Meridian purchases subscription access from Lumos and independently resells to end users — is fundamentally distinct from an agency model in which the agent binds the principal. The Agreement expressly provides that Meridian acts on its own behalf and for its own account, not as an agent or representative of Lumos. Accordingly, Meridian does not constitute a dependent agent PE of Lumos in Germany under Article 5(5) of the Treaty or Section 13 of the Abgabenordnung ("AO").
No Employee PE. Henrik Dalmqvist, Vice President, EMEA Sales, is the Lumos executive responsible for overseeing the EMEA channel reseller program. Mr. Dalmqvist is based in Palo Alto, California, not in Germany. While Mr. Dalmqvist may travel to Germany from time to time for business meetings, trade shows, or partner events, such occasional visits do not create a PE under the Treaty or German domestic law, provided that he does not maintain a fixed place of business in Germany or habitually exercise authority to conclude contracts there.
Conclusion. We assess the PE risk in Germany as low based on the current structure and operational arrangements. However, we recommend ongoing monitoring to ensure that no changes arise that could create a PE — for example, if Lumos were to station employees in Germany for extended periods (generally, more than 183 days in a 12-month period), if Lumos were to lease office space in Germany, or if the Agreement were amended to grant Meridian agency-type authority to bind Lumos.
B. Withholding Tax in Other EMEA Jurisdictions
1. United Kingdom. Meridian Data Solutions UK Ltd, as the pre-approved sub-distributor for the United Kingdom and Ireland, will resell Lumos Prism™ subscriptions in those markets. The payment flow contemplated by the Agreement is that Meridian UK pays Meridian GmbH (as an intra-group payment for resold subscriptions), and Meridian GmbH in turn remits payments to Lumos. Lumos is not expected to receive direct payments from Meridian UK.
Under UK domestic law, withholding tax on royalty payments made by UK-resident entities to non-residents is imposed at a rate of 20% under the Income Tax Act 2007, Part 15, Chapter 2. However, consistent with the analysis above regarding the characterization of SaaS resale payments, payments for the purchase and resale of SaaS subscription access are not properly characterized as royalties under UK law. HMRC's published guidance on cloud computing and software-as-a-service confirms that payments for cloud-based services, where the recipient does not obtain a copyright license, are not royalties for UK tax purposes.
In addition, the U.S.-UK Double Taxation Convention provides a 0% withholding rate on royalties paid by a UK-resident entity to a U.S.-resident beneficial owner. Accordingly, even if the payment flow were restructured such that Meridian UK paid Lumos directly (rather than through Meridian GmbH), Treaty protection would apply and no UK withholding tax would be imposed.
We note that the intra-group payments from Meridian UK to Meridian GmbH (a UK-to-Germany payment) would not involve any U.S. withholding tax considerations but should be structured at arm's-length for transfer pricing purposes, a matter addressed in the Transfer Pricing Memorandum.
2. France. Meridian Data Solutions SARL, as the pre-approved sub-distributor for France, Belgium, Luxembourg, and French-speaking Switzerland, will resell Lumos Prism™ subscriptions in those markets. As with the UK, the payment flow is expected to be from Meridian France to Meridian GmbH, with Meridian GmbH remitting payments to Lumos.
Under French domestic law, withholding tax on royalty payments made by French-resident entities to non-residents is imposed at a rate of 25% (or 26.5% for certain categories of recipients) under the Code général des impôts ("CGI"). However, consistent with the analysis above, SaaS resale payments are not properly characterized as royalties under French law.
The U.S.-France Tax Treaty provides a 0% withholding rate on royalties (Article 12) and exempts business profits from French taxation in the absence of a permanent establishment (Article 7). Accordingly, whether the payments are characterized as business profits or royalties, the U.S.-France Tax Treaty provides full protection against French withholding tax.
As a practical matter, because the current payment flow does not involve direct payments from Meridian France to Lumos, the French withholding tax analysis is relevant only as a contingency in the event of a restructuring of the payment flow.
3. Other Key EMEA Markets. The EMEA Territory encompasses a broad range of jurisdictions beyond Germany, the United Kingdom, and France. As Meridian expands its resale activities into additional EMEA markets, jurisdiction-by-jurisdiction withholding tax analysis will be required. As a general observation, most EMEA countries have income tax treaties with the United States that provide reduced or zero withholding rates on royalties and exempt business profits from source-country taxation in the absence of a permanent establishment. A summary of applicable treaty rates for key EMEA jurisdictions is set forth in Appendix A to this memorandum.
We draw particular attention to jurisdictions within the EMEA Territory that may have limited treaty networks with the United States, or that have adopted aggressive withholding tax positions on payments related to software and digital services. Certain Middle Eastern and African countries, including but not limited to Saudi Arabia, Nigeria, Kenya, and Egypt, may impose withholding taxes on software-related payments that cannot be fully eliminated by treaty. As Meridian expands into these markets, we recommend conducting a pre-entry withholding tax analysis to identify and mitigate any withholding tax exposure before the commencement of sales activities.
C. U.S. Tax Considerations for Lumos
1. Foreign Tax Credit. In the event that German or other EMEA withholding taxes are imposed on payments to Lumos notwithstanding the Treaty protections described above — for example, due to a characterization dispute, an administrative processing delay, or the absence of a Treaty in a particular jurisdiction — Lumos may claim foreign tax credits under Internal Revenue Code ("IRC") Sections 901 and 903 to offset its U.S. federal income tax liability. Foreign tax credits are available for income, war profits, and excess profits taxes paid or accrued to foreign countries, subject to limitations based on the foreign tax credit limitation formula under IRC Section 904.
While the foreign tax credit mechanism provides an important backstop, we recommend that Lumos structure its payment flows to minimize withholding at source rather than relying on foreign tax credits. Source-country withholding reduces Lumos's available cash flow and introduces complexity in the U.S. tax compliance process, including the need to track and substantiate creditable foreign taxes, navigate the Section 904 limitation, and potentially carry forward or carry back unused credits.
2. FDII / GILTI Considerations. Lumos's income from foreign resale activities may qualify for the Foreign-Derived Intangible Income ("FDII") deduction under IRC Section 250, which provides an effective reduced U.S. federal income tax rate on certain income derived from sales and services to foreign markets. For taxable years beginning after December 31, 2025, the FDII deduction is scheduled to be 21.875% (down from the current 37.5%), resulting in an effective tax rate of approximately 16.406% on FDII (assuming a 21% corporate tax rate), compared to the standard 21% rate on non-FDII income.
To qualify for the FDII deduction, Lumos must establish that the reseller payments received from Meridian constitute either (a) income from property sold to a foreign person for foreign use or consumption, or (b) income from services provided to a person, or with respect to property, located outside the United States. The characterization of the payments — as consideration for the sale of SaaS subscription rights to Meridian (a foreign person) — supports FDII eligibility, but a detailed quantification analysis is required, including determination of Lumos's deemed tangible income return ("DTIR") and the allocation of deductions attributable to FDII.
We recommend that Lumos coordinate with its auditors, Whitmore Paige & Co. LLP (audit partner: Gregory Chen), and with Caldwell & Pryce, to perform the FDII quantification as part of the annual tax return preparation process. Given the significance of the Meridian reseller revenue ($4.5 million to $6.9 million annually) relative to Lumos's total ARR, the FDII benefit could be material.
We also note that GILTI (Global Intangible Low-Taxed Income) under IRC Section 951A is not directly relevant to the current structure, as Lumos does not have controlled foreign corporation ("CFC") subsidiaries in EMEA. However, if Lumos were to establish a foreign subsidiary (e.g., for direct sales operations in EMEA), GILTI considerations would become relevant and should be analyzed at that time.
IV. VAT / GST Analysis
A. Characterization of Lumos Prism™ for VAT Purposes
For purposes of the EU VAT system, the Lumos Prism™ SaaS platform is classified as an "electronically supplied service." This characterization is established by Council Directive 2006/112/EC (the "VAT Directive"), as amended, specifically Article 58, and by Council Implementing Regulation (EU) No. 282/2011, Article 7. Electronically supplied services are defined as services delivered over the Internet or an electronic network, the nature of which renders their supply essentially automated and involving minimal human intervention, and which are impossible to ensure in the absence of information technology.
The Lumos Prism™ platform — a cloud-based analytics and data intelligence tool accessed by end users through web browsers and APIs — Squarely falls within this definition. The supply of Lumos Prism™ subscriptions is not a supply of goods (no tangible property changes hands), and it is not a traditional service (it is delivered electronically and is essentially automated). The classification as an electronically supplied service triggers specific place-of-supply rules under the VAT Directive that differ from the rules applicable to traditional services and goods.
B. Place of Supply Rules — B2B Transactions
1. General Rule (Article 44 of the VAT Directive). Under the general rule for B2B supplies of services set forth in Article 44 of the VAT Directive, the place of supply of services provided to a taxable person (i.e., a business) is the place where the recipient is established. This general rule governs the place of supply for electronically supplied services in B2B transactions, as there is no specific derogation for such services in the B2B context.
Applying this rule to the parties and payment flows under the Agreement:
(a) Lumos to Meridian GmbH: The place of supply is Germany, where Meridian GmbH is established.
(b) Meridian GmbH to Meridian UK: The place of supply is the United Kingdom, where Meridian Data Solutions UK Ltd is established.
(c) Meridian GmbH to Meridian France: The place of supply is France, where Meridian Data Solutions SARL is established.
(d) Meridian (or sub-distributors) to business end users in EMEA: The place of supply is the country of establishment of the business end user.
The significance of the place-of-supply determination is that VAT is generally chargeable in the country where the supply is deemed to take place. However, as discussed below, the reverse charge mechanism shifts the obligation to account for VAT from the supplier to the recipient in cross-border B2B transactions.
2. Lumos's VAT Obligations. Lumos is a non-EU entity (a U.S. corporation) supplying B2B electronically supplied services to EU and UK business customers. Under the reverse charge mechanism set forth in Article 196 of the VAT Directive, when a non-EU supplier provides services to an EU business recipient, the recipient (not the supplier) is liable for VAT. The recipient self-assesses the applicable VAT on the supply received, reports it on its VAT return as both output tax and (to the extent the supply is used for taxable business purposes) input tax, resulting in a net zero cash VAT impact for the recipient.
The practical implications for Lumos are as follows:
(a) Lumos does not charge VAT on invoices to Meridian GmbH. The invoice should reflect the net amount of the resale consideration without any VAT component.
(b) Lumos's invoices to Meridian GmbH must include certain mandatory information: (i) a clear statement that the reverse charge applies (e.g., "Reverse charge: the customer is liable for VAT pursuant to Article 196 of Council Directive 2006/112/EC"); (ii) Meridian's VAT identification number (DE319274105); and (iii) a clear description of the services supplied.
(c) Lumos is not required to obtain a VAT registration in Germany, the United Kingdom, France, or any other EMEA jurisdiction solely for the purpose of making B2B supplies of electronically supplied services to Meridian and its sub-distributors. The reverse charge mechanism eliminates the need for the supplier to register and account for VAT in the recipient's jurisdiction.
The same reverse charge principle applies to supplies from Meridian GmbH to Meridian UK. Following the United Kingdom's departure from the European Union, the UK has retained the reverse charge mechanism under the Value Added Tax Act 1994, as amended. Meridian UK self-accounts for UK VAT (currently at the standard rate of 20%) on services received from Meridian GmbH. Similarly, for supplies from Meridian GmbH to Meridian France, the French reverse charge applies, and Meridian France self-accounts for French VAT (currently at the standard rate of 20%).
3. Intra-Group Sub-Distribution VAT Treatment. The intra-group payment flows between Meridian GmbH and its sub-distributors (Meridian UK and Meridian France) are themselves subject to VAT rules, as follows:
Meridian GmbH to Meridian UK. This is a cross-border B2B supply of electronically supplied services from a German entity to a UK entity. Post-Brexit, the UK is treated as a third country for EU VAT purposes. The UK reverse charge applies: Meridian UK self-accounts for UK VAT at the standard rate of 20% on the consideration paid to Meridian GmbH. Meridian GmbH issues a zero-rated invoice (for EU VAT purposes) or an invoice without VAT (for UK purposes).
Meridian GmbH to Meridian France. This is an intra-EU B2B supply of electronically supplied services from a German entity to a French entity. The French reverse charge applies under Article 196 of the VAT Directive: Meridian France self-accounts for French VAT at the standard rate of 20% on the consideration paid to Meridian GmbH. Meridian GmbH issues an invoice without VAT, noting that the reverse charge applies, and includes Meridian France's French VAT identification number.
Transfer Pricing. The intra-group pricing between Meridian GmbH and its sub-distributors must be set at arm's-length to comply with both transfer pricing requirements and VAT rules (which generally require that the taxable amount reflects the consideration actually received). The arm's-length pricing for these intra-group transactions has been analyzed in coordination with Caldwell & Pryce as part of the Transfer Pricing Memorandum.
C. B2C Considerations
1. End User Sales to Consumers. While the Agreement primarily contemplates the resale of Lumos Prism™ subscriptions to enterprise customers (i.e., B2B sales), it is possible that Meridian or its sub-distributors may sell subscriptions to non-business end users (consumers), particularly in certain market segments where individual professionals or small business operators may purchase subscriptions for personal use. If such business-to-consumer ("B2C") sales occur, different VAT rules apply.
For B2C sales of electronically supplied services, Article 58 of the VAT Directive provides that the place of supply is the place where the customer (consumer) is established, has a permanent address, or usually resides. This means that Meridian (or the relevant sub-distributor), as the supplier to the end user, must charge and account for VAT at the rate applicable in the end user's member state of residence, not in the supplier's own member state.
One Stop Shop (OSS) Mechanism. To simplify compliance with multi-jurisdictional VAT obligations arising from B2C cross-border sales of electronically supplied services, the EU has established the One Stop Shop ("OSS") mechanism. Under the OSS, a supplier may register for the OSS in a single EU member state (the "member state of identification") and file a single quarterly VAT return covering all B2C supplies of electronically supplied services made to consumers in other EU member states. The member state of identification then distributes the VAT collected to the relevant member states of consumption. Meridian GmbH may register for the OSS in Germany to manage its B2C VAT obligations across the EU from a single registration point.
UK Equivalent. Following Brexit, the UK no longer participates in the EU OSS system. The UK previously operated a Non-Union VAT MOSS (Mini One Stop Shop) scheme, which has been replaced by direct UK VAT registration requirements for non-UK suppliers making B2C supplies of digital services to UK consumers. If Meridian UK makes B2C sales within the UK, it accounts for UK VAT through its standard UK VAT registration.
2. Practical Recommendation. We recommend that Lumos confirm with Meridian's General Counsel, Dr. Anneliese Brandt, and with Katarina Voss (who serves as Chief Commercial Officer of Meridian UK), whether end users include any B2C customers. If B2C sales are anticipated, Meridian should ensure that it has an OSS registration in place in Germany prior to the commencement of sales activities, and that Meridian UK has appropriate UK VAT procedures in place. The Channel Reseller Program Agreement contemplates enterprise software subscriptions and is primarily a B2B channel, but the possibility of consumer sales cannot be excluded, particularly in markets where individual practitioners and sole proprietors may purchase subscriptions.
D. VAT on Escrow Holdback Payments
The 5% escrow holdback on quarterly payments, which is directed to Evergreen Trust Company, N.A. (a U.S. entity), forms part of the overall consideration from Meridian to Lumos for the supply of SaaS subscription resale rights. The fact that a portion of the consideration is held in escrow pending the resolution of potential indemnification claims does not alter the VAT treatment of the underlying supply.
For VAT purposes, the taxable amount is the total consideration payable by Meridian to Lumos, including the escrow holdback portion. The reverse charge mechanism applies to the full amount: Meridian self-accounts for German VAT on the gross payment (including the holdback), not merely on the net amount actually remitted to Lumos's primary bank account at Pinnacle National Bank, N.A. This treatment is consistent with the principle that VAT is chargeable on the full consideration for the supply, regardless of the timing or mechanics of payment.
No separate VAT implications arise from the escrow arrangement itself, as the escrow is a payment mechanism and security arrangement, not a separate supply of services.
E. VAT Registration Requirements for Lumos
As discussed above, under the reverse charge mechanism, Lumos is not required to register for VAT in Germany, the United Kingdom, France, or other EMEA jurisdictions solely on the basis of its B2B supplies of electronically supplied services to Meridian and its sub-distributors. This is a significant administrative advantage of the current structure.
However, we note that a VAT registration obligation could arise if Lumos provides any direct services to EMEA end users outside the reseller channel. For example, if Lumos were to provide training sessions, implementation support, professional services, or consulting directly to Meridian's end users (rather than through Meridian as the reseller), such direct supplies could trigger a VAT registration obligation in the jurisdiction where the end user is located, depending on the nature and characterization of the services.
We recommend that Lumos monitor its direct activities in EMEA, particularly those conducted by Henrik Dalmqvist, VP EMEA Sales, and consult with Thornbridge Whitaker LLP (partner: Alistair Drummond) regarding any potential UK VAT registration triggers. As the EMEA channel program scales, the likelihood of Lumos personnel engaging directly with end users may increase, and proactive monitoring is essential to avoid inadvertent non-compliance with local VAT registration requirements.
V. Withholding Tax on Late Payment Interest
The Channel Reseller Program Agreement provides for late payment interest at a rate of 1.5% per month, equivalent to 18% per annum, compounded monthly. To the extent that Meridian incurs and pays late payment interest to Lumos, the withholding tax treatment of such interest must be considered separately from the treatment of the principal resale payments.
German Domestic Law. Under German domestic law, withholding on interest paid to non-residents is generally governed by Sections 49 and 50a EStG. The EU Interest and Royalties Directive (Council Directive 2003/49/EC) provides for a 0% withholding rate on interest and royalty payments made between associated companies of different EU member states. However, this directive is applicable only to payments between qualifying EU entities. Since Lumos is a U.S. corporation (not an EU entity), the Interest and Royalties Directive does not apply to interest payments from Meridian GmbH to Lumos.
U.S.-Germany Tax Treaty — Article 11 (Interest). Article 11 of the Treaty provides that interest arising in a Contracting State (Germany) and beneficially owned by a resident of the other Contracting State (the United States) shall be taxable only in the United States. In other words, the Treaty provides a 0% withholding rate on interest, which overrides any domestic withholding obligation. To claim this benefit, Lumos must satisfy the same Treaty eligibility requirements described in Section III.A.2 above — U.S. tax residence, beneficial ownership, and Limitation on Benefits compliance — and Meridian must maintain appropriate documentation (IRS Form 6166 and, ideally, a Freistellungsbescheinigung covering interest as well as the principal payments).
Conclusion. No German withholding tax should apply to late payment interest paid by Meridian to Lumos, provided that the Treaty compliance and documentation requirements are satisfied. We recommend that the Freistellungsbescheinigung application filed by Meridian with the BZSt expressly cover both the principal resale payments and any late payment interest, to ensure comprehensive withholding tax exemption at source.
VI. Transfer Pricing Considerations (Cross-Reference)
A comprehensive transfer pricing analysis of the reseller arrangement between Lumos and Meridian is set forth in the separate Transfer Pricing Overview Memorandum prepared by Leila Nazari and coordinated with Caldwell & Pryce Advisory LLC (Ingrid Svensson, Managing Director). This Section VI provides a summary cross-reference to the key conclusions of that analysis and highlights the transfer pricing considerations that intersect with the withholding tax and VAT analysis contained in this memorandum.
Arm's-Length Pricing. The 30% reseller discount off Lumos's published EMEA list prices has been benchmarked using the Comparable Uncontrolled Price ("CUP") method against comparable EMEA SaaS distribution arrangements. The CUP analysis identified a range of reseller discounts in the EMEA enterprise software market of approximately 20% to 40%, with an interquartile range of 25% to 35%. The 30% discount falls within the interquartile range and is confirmed as arm's-length by the Caldwell & Pryce memorandum dated March 15, 2024.
OECD Compliance. The transfer pricing analysis is consistent with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 edition), which establish the arm's-length principle as the international standard for transfer pricing.
German Documentation Requirements. Under Section 90(3) of the Abgabenordnung ("AO") and the Gewinnabgrenzungsaufzeichnungsverordnung ("GAufzV"), German taxpayers are required to maintain transfer pricing documentation in the form of a local file and a master file. Although Lumos and Meridian are not related parties (Lumos holds no equity in Meridian, and there is no common ownership between the two entities), German tax authorities may scrutinize the pricing of the reseller arrangement if Lumos provides volume rebates, marketing development funds, co-marketing support, or other economic benefits that effectively reduce the net price paid by Meridian below arm's-length levels. Accordingly, we recommend that:
(a) Meridian maintain local file and master file documentation supporting the arm's-length nature of the reseller discount, including the CUP benchmarking analysis and any supporting comparable data.
(b) Lumos maintain contemporaneous documentation supporting the arm's-length nature of the reseller discount on its side, including the rationale for the 30% discount, the competitive landscape for EMEA SaaS distribution, and any volume-related adjustments.
(c) Both parties retain copies of the Caldwell & Pryce memorandum dated March 15, 2024, as primary evidentiary support for the arm's-length characterization.
We note that the transfer pricing analysis and documentation are relevant not only for income tax purposes but also for VAT purposes, as the arm's-length pricing of intra-group transactions between Meridian GmbH and its sub-distributors (Meridian UK and Meridian France) affects the taxable amount for VAT on those intra-group supplies.
VII. Structuring Recommendations to Minimize Tax Leakage
Based on the analysis set forth in Sections III through VI above, we recommend the following structuring and compliance measures to minimize tax leakage across the Lumos/Meridian EMEA channel reseller arrangement.
A. Payment Flow Optimization
The direct payment flow from Meridian GmbH to Lumos (U.S.) is the simplest and most tax-efficient structure. By channeling all payments through a single point of remittance (Meridian GmbH), the arrangement avoids the creation of multiple withholding tax touchpoints across different EMEA jurisdictions and simplifies withholding tax compliance.
Sub-distributors (Meridian Data Solutions UK Ltd and Meridian Data Solutions SARL) should pay Meridian GmbH for the Lumos Prism™ subscriptions they resell, rather than paying Lumos directly. This preserves the single payment channel from Meridian GmbH to Lumos and ensures that the withholding tax analysis is concentrated in Germany, where the Treaty provides comprehensive protection.
All amounts under the Agreement are denominated in U.S. dollars, and Meridian bears the full foreign exchange risk. No tax structuring changes are required with respect to the currency denomination or FX risk allocation.
B. Treaty Compliance Documentation
Proper documentation is essential to ensuring that the Treaty-based withholding tax exemptions are implemented at source and to defending the position in the event of a German tax audit. We recommend the following:
(a) IRS Form 6166. Lumos should obtain an IRS Form 6166 (Certificate of U.S. Tax Residence) on an annual basis and provide the original to Meridian's finance or tax department promptly. The Form 6166 should be requested from the IRS at least 45 to 60 days before the beginning of each calendar year to ensure timely availability.
(b) Freistellungsbescheinigung. Meridian should file an application with the German Bundeszentralamt für Steuern for a Freistellungsbescheinigung covering both the principal resale payments and any late payment interest. The application should be filed as soon as practicable and renewed as required (typically every three years, subject to BZSt processing times).
(c) Beneficial Ownership and LOB Records. Both parties should maintain records demonstrating Lumos's beneficial ownership of the income and compliance with the LOB provisions of Article 28 of the Treaty. This includes organizational charts, ownership records, financial statements, and documentation of Lumos's active trade or business in the United States.
C. Invoicing Best Practices
The invoices issued by Lumos to Meridian GmbH are the primary transactional documentation and should be prepared with care to support the withholding tax and VAT positions outlined in this memorandum. We recommend that Lumos's invoices include the following elements:
(a) A clear description of the services supplied, using language consistent with the resale of SaaS subscription access (e.g., "Resale of Lumos Prism™ SaaS subscription access — EMEA Channel Reseller Program") rather than language that could be construed as an intellectual property license (e.g., avoid terms such as "license fee," "royalty," or "IP license").
(b) A statement that the reverse charge applies for VAT purposes (e.g., "Reverse charge: the customer is liable for VAT pursuant to Article 196 of Council Directive 2006/112/EC").
(c) Meridian's VAT identification number: DE319274105.
(d) No VAT charged by Lumos. The invoice should reflect a net amount without any VAT component.
(e) A reference to the U.S.-Germany Tax Treaty as the basis for the 0% withholding rate (e.g., "Withholding tax: 0% pursuant to Article 7 / Article 12 of the U.S.-Germany Income Tax Treaty").
Similarly, Meridian's invoices to its sub-distributors and end users should reflect the applicable local VAT obligations, including the reverse charge mechanism for intra-group B2B supplies and appropriate VAT charging for direct sales to end users.
D. Monitoring and Ongoing Compliance
The tax landscape for cross-border SaaS distribution is evolving, and ongoing compliance monitoring is essential. We recommend the following:
(a) Annual Withholding Tax Review. Conduct an annual review of withholding tax positions as Meridian expands into new EMEA jurisdictions. Each new jurisdiction should be analyzed for domestic withholding tax rates, applicable tax treaty protections, LOB provisions, and administrative documentation requirements.
(b) Legislative Monitoring. Monitor changes in German tax law (including any revisions to the EStG or BMF guidance on the characterization of SaaS payments), EU VAT rules (including the EU's "VAT in the Digital Age" or "ViDA" proposals, which may introduce significant changes to the VAT treatment of digital platform operators), and U.S. tax treaty developments (including any renegotiation of existing treaties or entry into new treaty relationships).
(c) FDII Coordination. Coordinate with Caldwell & Pryce Advisory LLC on the quantification of Lumos's FDII deduction for each tax year, incorporating the Meridian reseller revenue into the FDII calculation.
(d) Audit and Financial Reporting. Coordinate with Whitmore Paige & Co. LLP (Gregory Chen, Audit Partner) on the financial statement and audit implications of the withholding tax and VAT positions, including appropriate disclosures in Lumos's audited financial statements.
(e) UK Post-Brexit Developments. Coordinate with Thornbridge Whitaker LLP (Alistair Drummond) on any UK regulatory or tax changes arising from the post-Brexit environment that may affect the withholding tax or VAT treatment of supplies to or through Meridian Data Solutions UK Ltd.
VIII. Risk Factors and Caveats
The analysis and recommendations set forth in this memorandum are subject to the following risk factors and caveats, which Lumos should consider in evaluating its overall tax posture with respect to the EMEA Channel Reseller Program:
Recharacterization Risk. The principal risk identified in this memorandum is the possibility that German tax authorities could recharacterize the SaaS resale payments from Meridian to Lumos as royalties rather than business profits. Such a recharacterization would, under German domestic law, subject the payments to a 15.825% withholding tax under Section 50a EStG. However, this risk is significantly mitigated by two factors: (i) the contract structure, which does not grant Meridian any IP license, source code access, or modification rights, strongly supports the business profits characterization; and (ii) even if the payments were recharacterized as royalties, the Treaty provides a 0% withholding rate on royalties under Article 12, resulting in no incremental tax cost. The primary consequence of a recharacterization would be an administrative burden (the need to apply for and document the Treaty-based exemption specifically as a royalty reduction rather than as a business profits exemption), not a cash tax cost.
Permanent Establishment Risk. The PE risk assessment set forth in Section III.A.3 above concludes that Lumos does not currently have a permanent establishment in Germany. This assessment is based on the current structure and operations. The PE risk would increase materially if: (i) Lumos were to station employees in Germany on a long-term or permanent basis; (ii) Lumos were to lease or acquire office space in Germany; (iii) the Agreement were amended to grant Meridian agency-type authority to conclude contracts binding on Lumos; or (iv) Lumos were to exercise direct operational control over the Stratos Cloud Services AG Frankfurt data center. Any of these developments should be flagged to Calderwood & Harkness for reassessment of the PE analysis.
EU Pillar Two — Global Minimum Tax. The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting ("BEPS") has introduced Pillar Two, which establishes a global minimum effective tax rate of 15% for multinational enterprise groups with consolidated annual revenues of at least €750 million. Lumos, with $187.4 million in ARR, is currently below the €750 million consolidated revenue threshold for Pillar Two applicability. However, Crestline Capital Partners, LP (as the private equity sponsor holding 62.3% of Lumos's equity) may have portfolio companies that, when aggregated, could approach or exceed the threshold. Additionally, Lumos's growth trajectory should be monitored — if Lumos's consolidated revenue (including revenue from affiliated entities, if any) approaches the €750 million threshold, Pillar Two compliance obligations may arise, including top-up tax calculations and qualified domestic minimum top-up tax ("QDMTT") considerations.
OECD BEPS Developments. Ongoing work by the OECD/G20 Inclusive Framework on Amount A (a new taxing right that would reallocate a portion of residual profits to market jurisdictions) and Amount B (a simplified transfer pricing approach for baseline marketing and distribution activities) may affect future withholding tax, nexus, and transfer pricing rules applicable to the Lumos/Meridian arrangement. Additionally, several EMEA jurisdictions have enacted or are considering unilateral digital services taxes ("DSTs") that impose levies on revenue derived fr

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