Dear Ciarán,
I hope this message finds you well. I am writing as a follow-up to our ongoing coordination in connection with the IRS Large Business & International Division examination of Penterra Pharmaceuticals Corp. ("PPC") (EIN 22-3741856) for tax years 2017–2020 (Exam Team ID LB&I-NE-TP-2022-00641). As you know, Calderwood & Harkness serves as outside tax counsel to PPC, and Thornbury & Keogh serves as Irish tax advisors to Penterra Biopharma International DAC ("PBI") and Penterra Manufacturing Ireland Ltd. ("PMI").
I appreciated your team's assistance back in August when we coordinated on the Irish Revenue filings and Knowledge Development box documentation. Since that exchange, the IRS examination has continued to develop — the exam team has now issued 47 IDRs between June 2022 and September of this year, and we expect additional requests through 2023. As the examination has progressed, a key area of IRS focus has become clear: the Service is scrutinizing whether PBI possesses sufficient economic substance in Ireland and performs meaningful DEMPE functions (Development, Enhancement, Maintenance, Protection, and Exploitation) to justify its role as IP owner and participant in the cost sharing arrangement. In our assessment, the IRS exam team appears to be building toward an economic substance challenge.
To that end, we are now developing a comprehensive functional analysis demonstrating PBI's substantive presence, operational autonomy, and decision-making authority in Ireland. In order to build out this analysis thoroughly, we need to gather additional documentation from PBI, and we believe T&K is well positioned to assist in locating and providing many of these materials. I have organized our requests by category below.
**1. Lease Agreements and Physical Presence Documentation**
- Copies of PBI's current lease agreement(s) for its offices at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland, including any amendments, renewal terms, and floor plans or layout documentation. We understand the office space is approximately 18,000 square feet. - If PBI occupied different or smaller premises at any point earlier in the 2017–2020 period, copies of any prior lease agreements as well. - Utility bills, property service charges, or similar records evidencing actual occupancy of the premises during the relevant period.
**2. Employee Contracts and Headcount Documentation**
- Template and/or representative employment contracts for PBI employees, with particular focus on senior and key personnel. - Annual headcount summaries or HR records for each year 2017–2020, showing employee numbers, departmental breakdowns, and functional roles. We understand PBI's headcount grew from 52 employees at establishment in 2012 to 185 employees by year-end 2020, and it would be helpful to document this trajectory across each of the exam years. - The employment agreement or service contract for Aidan Naughton, Managing Director of PBI, along with any board resolutions or governance documents relating to his appointment and the scope of his authority. - Organizational charts for PBI for each year 2017–2020, to the extent not already provided. - Records identifying employees with decision-making authority in the following functional areas, which are critical to demonstrating PBI's substantive role: regulatory affairs, medical affairs, commercial strategy, supply chain management, and pricing.
**3. Banking Records — Glenmore Bank Ireland plc**
- PBI's bank account statements with Glenmore Bank Ireland plc for the period 2017–2020, or, if full statements are impractical, representative periods or summaries demonstrating independent treasury operations. - Evidence of PBI's banking relationship, including account opening documentation, lists of authorized signatories, and any credit facilities or treasury arrangements maintained independently of PPC.
These records will be important in demonstrating PBI's financial independence and operational autonomy from the U.S. parent.
**4. Board Governance Documentation**
- We understand that PBI held 42 board meetings during 2017–2020 (quarterly meetings plus special sessions, all convened in Dublin). Board minutes were discussed in the context of our response to IDR No. 9, but we would appreciate any additional governance materials T&K may hold beyond what has already been produced. - Board packs or supporting materials for a representative sample of board meetings — ideally a selection that reflects the substance of matters discussed, such as pricing decisions, market entry strategies, regulatory submissions, and capital expenditure approvals. - Any written board resolutions evidencing PBI's independent decision-making authority over commercialization in non-Americas territories.
**5. Regulatory Expenditure and Submission Records**
- PBI incurred cumulative regulatory expenditures of approximately €47.2 million across 68 country markets during 2017–2020. We would appreciate supporting documentation to corroborate these figures, including invoices, contracts with regulatory consultants, or internal expenditure summaries that T&K may hold or can obtain from PBI.
**6. Additional Substance Indicators**
- Evidence of PBI's independent pricing decisions across non-Americas markets, including internal pricing committee minutes, market-specific pricing analyses, or correspondence with distribution partners. - Records of PBI's capital expenditures on IT infrastructure, equipment, or other operational investments during 2017–2020.
**Timing and Deadlines**
We are targeting completion of the comprehensive functional analysis by year-end 2022, with an updated version planned for March 2023. To meet that timeline, it would be very helpful to receive as many of these materials as possible by **early December 2022**. I recognize that some items may require more lead time to locate or compile, and I would appreciate your letting us know which requests may fall into that category so we can plan accordingly.
A note on sensitivity: given that these documents are being gathered at the direction of counsel in connection with the IRS examination defense, and in light of privilege considerations under the Kovel arrangement and attorney work product protections, I would ask that all materials be transmitted securely. We can provide access to Calderwood & Harkness's secure file-sharing platform for this purpose — I will send login credentials separately if that would be convenient.
Please do not hesitate to let me know if you have any questions about the scope of these requests or if it would be helpful to schedule a call to discuss priorities. I am also happy to provide a more detailed checklist or tracking matrix in a follow-up if that would be useful for your team in organizing the document gathering.
I want to thank you and the entire T&K team for your continued cooperation and support on this matter. It has been invaluable. I should also mention that Garrett Simmons, copied here, is coordinating the economic analysis with Whitmore Valuation Group and may follow up directly with you or your colleagues on specific data points as they arise.
I look forward to hearing from you.
With kind regards,
Leila Nazari Senior Associate Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Direct: (215) 574-8923 lnazari@calderwoodharkness.com
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