Dear Mr. Thornbury,
I hope this message finds you well. My name is Leila Nazari, and I am an associate in the Tax Department at Calderwood & Harkness LLP. I am writing to introduce myself and to initiate coordination between our respective firms in connection with our representation of Penterra Pharmaceuticals Corp. ("PPC") in an ongoing IRS examination. I work under the direction of Leonard Cross, who serves as the Responsible Partner on this engagement and is copied here. Marcus Whitfield, VP of Global Tax at PPC, has indicated that Thornbury & Keogh serves as the Irish tax advisor to both Penterra Biopharma International DAC ("PBI") and Penterra Manufacturing Ireland Ltd. ("PMI"), and Leonard suggested that I reach out to you directly to begin coordinating on the Irish tax aspects of the defense.
By way of background, the IRS Large Business & International Division opened an examination of PPC on May 16, 2022, covering tax years 2017 through 2020 (Exam Team ID LB&I-NE-TP-2022-00641). The examination is focused on the transfer pricing methodology applied to PPC's intercompany arrangements with PBI — specifically, the cost-sharing arrangement ("CSA") that has been in effect since July 1, 2012, and the legacy intellectual property royalty arrangement (4.5% of non-Americas net sales). The IRS is challenging whether the CSA cost-sharing ratios and royalty rates reflect arm's-length pricing under IRC § 482. Calderwood & Harkness was retained as outside counsel pursuant to an engagement letter executed on June 2, 2022. We have also retained Whitmore Valuation Group LLC as an independent economic consultant under a Kovel arrangement (Kovel letter executed June 20, 2022, reference 1018-00009-KV) to support the defense with benchmarking, valuation, and functional analyses. We are currently in the process of responding to Information Document Requests ("IDRs") from the IRS and building the factual record to support PPC's positions.
To develop a comprehensive and consistent defense, we need to assemble a complete picture of PBI's Irish tax compliance and the positions taken in Ireland. I would be grateful if you could provide the following materials at your earliest convenience:
1. **PBI Irish Corporation Tax Returns (Form CT1):** Copies of PBI's Irish corporation tax returns for each of tax years 2017, 2018, 2019, and 2020. For reference, PBI's Irish Tax Reference number is 3218764T.
2. **Knowledge Development box (KDB) Claims:** Documentation supporting PBI's claims under Ireland's Knowledge Development box regime at the 6.25% effective rate on qualifying IP income. It is our understanding that PBI has claimed KDB benefits from FY 2016 forward. Specifically, we would appreciate: - The KDB election/claim forms filed with Irish Revenue for each year 2017–2020; - Any supporting schedules or computations identifying qualifying assets and qualifying profits; and - Any correspondence with Irish Revenue regarding KDB eligibility.
3. **PBI Irish Statutory Financial Statements:** Audited or filed statutory financial statements for PBI for 2017–2020, including notes relating to intercompany transactions, related-party disclosures, and intellectual property. For context, we understand that PBI reported revenue of approximately €2.14 billion and pre-tax income of approximately €1.06 billion for FY 2020.
4. **PMI Irish Tax Returns and Financial Statements:** To the extent available, copies of Penterra Manufacturing Ireland Ltd.'s Irish corporation tax returns and statutory financial statements for 2017–2020 (PMI Irish CRO Number: 512347). We understand that PMI operates under a cost-plus 8% arrangement with PBI and employs approximately 620 people at its facility in Ringaskiddy, Co. Cork.
5. **Irish Revenue Correspondence:** Any correspondence between PBI (or PMI) and Irish Revenue during the 2017–2020 period relating to transfer pricing, the CSA, intercompany arrangements, or any audits or enquiries.
6. **Transfer Pricing Documentation Filed in Ireland:** Any contemporaneous transfer pricing documentation or local files prepared for PBI under Irish transfer pricing rules for the years at issue.
I should note that this communication is made in the context of Calderwood & Harkness's legal representation of PPC and is intended to be protected by attorney-client privilege and the work-product doctrine. We would ask that Thornbury & Keogh treat all communications and documents shared in connection with this matter as privileged and confidential. To the extent that any of your firm's work product will be shared with us to support the legal defense, you may wish to consider labeling such documents accordingly.
Looking ahead, we anticipate ongoing coordination with Thornbury & Keogh throughout the course of this examination, particularly with respect to (i) the dual-jurisdiction aspects of the transfer pricing defense, (ii) ensuring consistency of positions taken before the IRS and Irish Revenue, and (iii) potential competent authority or mutual agreement procedure considerations under the U.S.-Ireland Income Tax Treaty — though we recognize this last point is a topic for future discussion rather than an immediate concern. The IRS has been issuing IDRs at a steady pace since June, and we expect that some will call for Irish-sourced documents, so timely coordination between our firms will be important.
With respect to timing, we would be grateful if you could provide the materials listed above — or as many as are readily available — within the next two to three weeks, if that is feasible. In addition, we would welcome the opportunity to schedule an introductory call with you, Leonard Cross, and myself to discuss the matter in greater detail and to establish a regular coordination cadence going forward. We have availability during the week of August 22 and would be happy to work around your schedule.
Should it be helpful for your reference, I am happy to provide a copy of the IRS's initial contact letter (Letter 2205-A dated May 16, 2022) or a summary of the examination scope — please do not hesitate to let me know.
Thank you very much for your time and assistance, Mr. Thornbury. We look forward to working with you and your colleagues on this matter.
Kind regards,
Leila Nazari Associate, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Direct: (215) 498-3742 Email: lnazari@calderwoodharkness.com
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