1018-00009 · Client 1018 · IDR Responses

idr-07-response.docx DOCUMENT M&A / Corporate

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Contract analysis Extract to table

CALDERWOOD & HARKNESS LLP

CALDERWOOD & HARKNESS LLP Attorneys at Law

1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 854-7000 Facsimile: (215) 854-7001

600 Lexington Avenue New York, NY 10022 Telephone: (212) 558-4000 Facsimile: (212) 558-4001

www.calderwoodharkness.com

August 25, 2022

VIA SECURE E-MAIL AND FIRST-CLASS MAIL

Revenue Agent Patricia Dunleavy Internal Revenue Service Large Business & International Division Exam Team ID: LB&I-NE-TP-2022-00641 290 Broadway, 14th Floor New York, NY 10007

Re: Penterra Pharmaceuticals Corp. (EIN: 22-3741856) Response to Information Document Request No. 7 Tax Years Under Examination: 2017, 2018, 2019, 2020 C&H Matter Number: 1018-00009

Dear Revenue Agent Dunleavy:

I am a Lead Associate in the Tax Department of Calderwood & Harkness LLP, writing on behalf of our client, Penterra Pharmaceuticals Corp. ("PPC" or the "Taxpayer"). As you are aware, this firm represents PPC in connection with the ongoing examination of PPC's federal income tax liabilities for the tax years ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020 (the "Tax Years Under Examination"). Our authority to represent PPC before the Internal Revenue Service (the "Service") is established by IRS Form 2848, Power of Attorney and Declaration of Representative, filed on June 8, 2022, which authorizes Leonard Cross (Partner), Sylvia Hartwell (Partner), the undersigned Garrett Simmons (Lead Associate), and Leila Nazari (Associate) to act as PPC's authorized representatives in this matter. A copy of the executed Form 2848 is on file with the Service.

This letter is submitted in response to Information Document Request No. 7 ("IDR No. 7"), issued by you on August 4, 2022, requesting the production of the financial statements and tax returns of Penterra Biopharma International DAC ("PBI"), PPC's Irish subsidiary. The production described herein is made in accordance with the engagement letter dated June 2, 2022, between Calderwood & Harkness LLP and PPC, pursuant to which this firm has been engaged to represent PPC throughout the current examination cycle. We are producing the requested documents concurrently with this letter, organized in the tabbed format described below.

I. Description of IDR No. 7 Request

IDR No. 7, dated August 4, 2022, requests the following categories of documents:

1. The Irish statutory financial statements (audited) of Penterra Biopharma International DAC for fiscal years ending December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020; and

2. The Irish income tax returns (Corporation Tax returns, Form CT1) of Penterra Biopharma International DAC, together with all schedules and attachments, as filed with the Irish Revenue Commissioners for fiscal years ending December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020.

We note that PPC's fiscal year-end is December 31, and PBI follows the same fiscal year-end. Accordingly, the fiscal years of PBI's financial statements and tax returns correspond directly to the Tax Years Under Examination. We confirm that the scope of the production herein covers all four tax years under examination (2017, 2018, 2019, and 2020), consistent with the scope of IDR No. 7.

II. Identification of Penterra Biopharma International DAC

For purposes of contextualizing the documents produced, we provide the following background information regarding PBI:

Full Legal Name: Penterra Biopharma International DAC

Entity Type: Designated Activity Company organized and existing under the laws of Ireland pursuant to the Irish Companies Act 2014

Registered Office: 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland

Irish Tax Reference Number: 3218764T

Date of Incorporation: March 15, 2012

Managing Director: Aidan Naughton

Ownership Structure: PBI is 100% owned by Penterra Holdings Luxembourg S.à r.l. ("PHL"), a société à responsabilité limitée organized under the laws of the Grand Duchy of Luxembourg, registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés) under number B 168452. PHL is, in turn, 100% owned by Penterra Pharmaceuticals Corp., the U.S. parent company and the Taxpayer in this examination. PHL has elected to be treated as a disregarded entity for U.S. federal income tax purposes pursuant to Treasury Regulations § 301.7701-3. As a consequence of PHL's disregarded entity classification, PBI is treated as directly owned by PPC for U.S. federal income tax purposes. PBI is classified as a controlled foreign corporation ("CFC") within the meaning of Internal Revenue Code § 957(a), and PPC files Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations) with respect to PBI as part of PPC's consolidated federal income tax returns.

Business Function and Activities: PBI serves as the intellectual property-holding company and commercial principal for the non-Americas regions of PPC's global pharmaceutical business. In this capacity, PBI holds economic rights to certain intangible property developed under cost-sharing arrangements with PPC, and additionally licenses certain legacy intellectual property from PPC under an intercompany licensing agreement. PBI manages contract manufacturing and distribution arrangements across the Europe, Middle East and Africa ("EMEA") and Asia-Pacific ("APAC") regions. PBI's key commercial products include Veritaxol (an oncology therapeutic), Imvara (a rheumatology biologic), and Cerulon (a CNS-indication compound). PBI contracts with Penterra Manufacturing Ireland Ltd. ("PMI"), an affiliated Irish entity (Irish Companies Registration Office Number 512347), for contract manufacturing services on a cost-plus basis.

III. Description of Documents Produced

The documents responsive to IDR No. 7 are organized into three tabs, as described in detail below.

A. Tab 1: PBI Irish Statutory Financial Statements (Fiscal Years 2017–2020)

Tab 1 contains the audited statutory financial statements of Penterra Biopharma International DAC for the four fiscal years ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020. Each set of financial statements was prepared in accordance with Irish Generally Accepted Accounting Practice ("Irish GAAP"), specifically Financial Reporting Standard 102 ("FRS 102"), The Financial Reporting Standard applicable in the UK and Republic of Ireland, as issued by the Financial Reporting Council. The financial statements were audited by PBI's independent statutory auditor and were filed with the Irish Companies Registration Office ("CRO") in accordance with the requirements of the Irish Companies Act 2014.

Each set of audited statutory financial statements includes the following components:

• Directors' Report

• Independent Auditor's Report

• Statement of Comprehensive Income

• Balance Sheet (Statement of Financial Position)

• Statement of Changes in Equity

• Cash Flow Statement

• Notes to the Financial Statements

For context and to facilitate the exam team's review, we highlight the following key financial data as reflected in the produced financial statements:

The growth in revenue and pre-tax income over the four-year period is attributable principally to expanded commercialization of Veritaxol and Imvara across EMEA and APAC markets, as well as the launch of Cerulon in key European markets in fiscal year 2019, as detailed in the Directors' Reports and Notes to the Financial Statements for the relevant years.

We also note for the exam team's reference that PBI is subject to the standard Irish corporation tax rate of 12.5% on trading income. In addition, beginning in fiscal year 2016, PBI has claimed benefits under Ireland's Knowledge Development box ("KDB") regime, as provided under Section 769R of the Irish Taxes Consolidation Act 1997, which affords an effective tax rate of 6.25% on qualifying intellectual property income derived from qualifying assets. The application of the KDB regime to PBI's qualifying IP income is reflected in the Notes to the Financial Statements and in the Irish Corporation Tax returns produced under Tab 2.

The documents comprising Tab 1 have been Bates-stamped PPC-IDR7-000001 through PPC-IDR7-000487.

B. Tab 2: PBI Irish Corporation Tax Returns (Fiscal Years 2017–2020)

Tab 2 contains the Irish Corporation Tax returns (Form CT1) filed by PBI with the Irish Revenue Commissioners (An Coimisinéirí Ioncaim) for the four fiscal years ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020. The returns were filed under PBI's Irish Tax Reference Number 3218764T.

The production includes complete copies of each Form CT1 as filed, together with all schedules, supplementary pages, and attachments accompanying each return. The returns reflect PBI's trading income subject to the 12.5% Irish corporation tax rate, as well as income qualifying for the Knowledge Development box regime at the reduced effective rate of 6.25%, consistent with the financial statement disclosures described in Section III.A above.

We note that the Form CT1 returns were prepared with the assistance of Thornbury & Keogh, Chartered Tax Advisors, of 22 Fitzwilliam Square, Dublin 2, D02 YH68, Ireland, which serves as PBI's Irish tax advisor. The lead partner responsible for PBI's Irish tax compliance engagement at Thornbury & Keogh is Ciarán Thornbury.

The documents comprising Tab 2 have been Bates-stamped PPC-IDR7-000488 through PPC-IDR7-000793.

C. Tab 3: Supporting Schedules

In addition to the primary documents requested, and in the spirit of full cooperation with the examination, we are producing under Tab 3 certain supplemental schedules extracted from or derived from PBI's financial statements and tax returns that may be of particular relevance to the exam team's analysis. These supplemental schedules include the following:

1. Intercompany Transactions Schedule. A schedule reflecting intercompany transactions between PBI and related parties for each of the fiscal years 2017 through 2020. This schedule details (a) royalty payments made by PBI to PPC under the legacy intellectual property license agreement (calculated at 4.5% of non-Americas net sales), and (b) cost-sharing payments made by PBI to PPC under the qualified cost-sharing arrangement ("CSA") between PPC and PBI. The intercompany transactions schedule is consistent with the related-party disclosures contained in the Notes to the Financial Statements produced under Tab 1.

2. Revenue Breakdown by Product Line and Territory. A schedule setting forth PBI's revenue for each of the fiscal years 2017 through 2020, disaggregated by product line (Veritaxol, Imvara, and Cerulon) and by geographic territory (sub-divided within the non-Americas regions, including key EMEA and APAC markets). This schedule is derived from management reporting data underlying the financial statements and is consistent with the segment disclosures included in the Notes to the Financial Statements.

3. Headcount Information. A schedule reflecting PBI's employee headcount at year-end for each fiscal year from 2012 (the year of incorporation) through 2020. PBI's workforce grew from 52 employees at its establishment in 2012 to 185 employees by the end of fiscal year 2020. The schedule includes a breakdown by functional category (including commercial operations, regulatory affairs, supply chain management, finance and administration, and medical affairs).

4. Related-Party Disclosures. A compilation of the related-party transaction disclosures from the Notes to the Financial Statements for each of the fiscal years 2017 through 2020, noting transactions between PBI and (a) PPC (the U.S. parent company), (b) PHL (the Luxembourg intermediate holding company), and (c) PMI (Penterra Manufacturing Ireland Ltd., Irish CRO Number 512347), PBI's affiliated Irish contract manufacturer, which provides manufacturing services to PBI on a cost-plus-8% basis pursuant to an intercompany contract manufacturing agreement.

The documents comprising Tab 3 have been Bates-stamped PPC-IDR7-000794 through PPC-IDR7-000862.

IV. Coordination with Irish Tax Advisors

We wish to note for the record that the production of the documents described herein was coordinated with Thornbury & Keogh, Chartered Tax Advisors (Lead Partner: Ciarán Thornbury), PBI's Irish tax advisors, and with PBI's Managing Director, Aidan Naughton. Mr. Naughton and Mr. Thornbury authorized the release of these documents to Calderwood & Harkness LLP for production to the Service in connection with the current examination. We further note that PBI maintains its principal Irish banking relationship with Glenmore Bank Ireland plc.

V. Privilege Reservation

The production of the documents described herein is made without waiver of any applicable privilege, including, without limitation, the attorney-client privilege, the tax practitioner privilege under Internal Revenue Code § 7525, and the work-product protection afforded under Federal Rule of Civil Procedure 26(b)(3) and its equivalents. PPC expressly reserves all rights and objections with respect to the privileged or protected nature of any document or communication, and the production of any document in response to IDR No. 7 shall not be construed as a waiver of any privilege or protection that may apply to any other document or communication.

We note that certain documents responsive to IDR No. 7 that are subject to the attorney-client privilege, the work-product doctrine, or other applicable protections have been withheld from this production. These withheld documents will be identified on a privilege log, which will be produced separately in accordance with the procedures agreed upon between the exam team and PPC's representatives.

In addition, we note that Calderwood & Harkness LLP has entered into a Kovel arrangement with Whitmore Valuation Group LLC, as memorialized in C&H Kovel Letter Reference 1018-00009-KV, dated June 20, 2022. Pursuant to that arrangement, Whitmore Valuation Group LLC is retained as a consulting expert under the direction and control of counsel in connection with the current examination. Any communications between Whitmore Valuation Group LLC and PBI personnel, PPC personnel, or other third parties that were made at the direction of counsel for the purpose of facilitating the rendition of legal advice are privileged under the attorney-client privilege and the work-product doctrine, and such communications have not been produced and will not be produced absent a valid waiver or a court order.

VI. Document Inventory / Index

The following table provides a complete index of the documents produced in response to IDR No. 7:

Total pages produced: 862

VII. Offer of Cooperation

PPC remains committed to cooperating fully and transparently with the Service throughout the current examination. We stand ready to provide any additional information, documentation, or clarification that the exam team may require in connection with its review of the documents produced herein or otherwise.

We note that PPC's U.S. consolidated federal income tax returns (Forms 1120) for the Tax Years Under Examination (2017, 2018, 2019, and 2020), which include PBI-related reporting on IRS Forms 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations), have been or will be produced in response to separate IDRs previously issued or anticipated in the examination. The Forms 5471 will provide the exam team with U.S. tax reporting information regarding PBI that is complementary to the Irish statutory financial statements and Corporation Tax returns produced herein.

Additionally, we note that Crestfield & Associates LLP, PPC's independent auditor and the preparer of PPC's original contemporaneous transfer pricing documentation, is available to provide additional supporting workpapers if requested through appropriate channels. The engagement partner at Crestfield & Associates LLP responsible for PPC's audit is Martin Ogilvy, and the transfer pricing partner is Susan Lam. Any requests for Crestfield & Associates LLP workpapers or supporting materials should be directed to the undersigned or to Leonard Cross, the responsible partner at Calderwood & Harkness LLP for this matter, so that appropriate arrangements can be made.

Please do not hesitate to contact the undersigned at (215) 854-7245 or at gsimmons@calderwoodharkness.com, or Leonard Cross, Responsible Partner, at (212) 558-4312 or at lcross@calderwoodharkness.com, with any questions regarding this production or any other aspect of the examination.

We appreciate your courtesy and professionalism throughout this process and look forward to continuing to work with the exam team.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Garrett Simmons Lead Associate, Tax Department 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 854-7245 Facsimile: (215) 854-7001 E-mail: gsimmons@calderwoodharkness.com Licensed in New York

cc: (via e-mail)

Leonard Cross, Partner, Calderwood & Harkness LLP (Responsible Partner) Sylvia Hartwell, Partner, Calderwood & Harkness LLP (Billing Partner) Leila Nazari, Associate, Calderwood & Harkness LLP Marcus Whitfield, Vice President, Global Tax, Penterra Pharmaceuticals Corp., 2200 Independence Boulevard, Princeton Junction, NJ 08550 Deborah Staines, General Counsel, Penterra Pharmaceuticals Corp. Supervisory Revenue Agent Gerald Meskill, IRS Large Business & International Division (Team Manager)

Enclosures:

As indexed above (Tabs 1–3):

• Tab 1: PBI Audited Statutory Financial Statements, FY 2017, FY 2018, FY 2019, and FY 2020 (4 document sets)

• Tab 2: PBI Irish Corporation Tax Returns (Form CT1), FY 2017, FY 2018, FY 2019, and FY 2020 (4 document sets)

• Tab 3: Supplemental Schedules (Intercompany Transactions, Revenue Breakdown by Product Line and Territory, Headcount Information, and Related-Party Disclosures)

Total primary documents: 8 (4 financial statement sets + 4 tax returns), plus supplemental schedules Total pages: 862

Fiscal Year	Revenue (€)	Pre-Tax Income (€)
FY 2017	€1,320,000,000	€585,000,000
FY 2018	€1,580,000,000	€740,000,000
FY 2019	€1,840,000,000	€890,000,000
FY 2020	€2,140,000,000	€1,060,000,000
Tab	Document Description	Bates Range
Tab 1	PBI Audited Statutory Financial Statements, FY 2017	PPC-IDR7-000001 – PPC-IDR7-000118
Tab 1	PBI Audited Statutory Financial Statements, FY 2018	PPC-IDR7-000119 – PPC-IDR7-000241
Tab 1	PBI Audited Statutory Financial Statements, FY 2019	PPC-IDR7-000242 – PPC-IDR7-000367
Tab 1	PBI Audited Statutory Financial Statements, FY 2020	PPC-IDR7-000368 – PPC-IDR7-000487
Tab 2	PBI Irish Corporation Tax Return (Form CT1), FY 2017	PPC-IDR7-000488 – PPC-IDR7-000564
Tab 2	PBI Irish Corporation Tax Return (Form CT1), FY 2018	PPC-IDR7-000565 – PPC-IDR7-000643
Tab 2	PBI Irish Corporation Tax Return (Form CT1), FY 2019	PPC-IDR7-000644 – PPC-IDR7-000718
Tab 2	PBI Irish Corporation Tax Return (Form CT1), FY 2020	PPC-IDR7-000719 – PPC-IDR7-000793
Tab 3	Supplemental Schedules (Intercompany Transactions, Revenue Breakdown, Headcount, and Related-Party Disclosures)	PPC-IDR7-000794 – PPC-IDR7-000862

CALDERWOOD & HARKNESS LLP
CALDERWOOD & HARKNESS LLP Attorneys at Law
1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 854-7000 Facsimile: (215) 854-7001
600 Lexington Avenue New York, NY 10022 Telephone: (212) 558-4000 Facsimile: (212) 558-4001
www.calderwoodharkness.com
August 25, 2022
VIA SECURE E-MAIL AND FIRST-CLASS MAIL
Revenue Agent Patricia Dunleavy Internal Revenue Service Large Business & International Division Exam Team ID: LB&I-NE-TP-2022-00641 290 Broadway, 14th Floor New York, NY 10007
Re: Penterra Pharmaceuticals Corp. (EIN: 22-3741856) Response to Information Document Request No. 7 Tax Years Under Examination: 2017, 2018, 2019, 2020 C&H Matter Number: 1018-00009
Dear Revenue Agent Dunleavy:
I am a Lead Associate in the Tax Department of Calderwood & Harkness LLP, writing on behalf of our client, Penterra Pharmaceuticals Corp. ("PPC" or the "Taxpayer"). As you are aware, this firm represents PPC in connection with the ongoing examination of PPC's federal income tax liabilities for the tax years ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020 (the "Tax Years Under Examination"). Our authority to represent PPC before the Internal Revenue Service (the "Service") is established by IRS Form 2848, Power of Attorney and Declaration of Representative, filed on June 8, 2022, which authorizes Leonard Cross (Partner), Sylvia Hartwell (Partner), the undersigned Garrett Simmons (Lead Associate), and Leila Nazari (Associate) to act as PPC's authorized representatives in this matter. A copy of the executed Form 2848 is on file with the Service.
This letter is submitted in response to Information Document Request No. 7 ("IDR No. 7"), issued by you on August 4, 2022, requesting the production of the financial statements and tax returns of Penterra Biopharma International DAC ("PBI"), PPC's Irish subsidiary. The production described herein is made in accordance with the engagement letter dated June 2, 2022, between Calderwood & Harkness LLP and PPC, pursuant to which this firm has been engaged to represent PPC throughout the current examination cycle. We are producing the requested documents concurrently with this letter, organized in the tabbed format described below.
I. Description of IDR No. 7 Request
IDR No. 7, dated August 4, 2022, requests the following categories of documents:
1. The Irish statutory financial statements (audited) of Penterra Biopharma International DAC for fiscal years ending December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020; and
2. The Irish income tax returns (Corporation Tax returns, Form CT1) of Penterra Biopharma International DAC, together with all schedules and attachments, as filed with the Irish Revenue Commissioners for fiscal years ending December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020.
We note that PPC's fiscal year-end is December 31, and PBI follows the same fiscal year-end. Accordingly, the fiscal years of PBI's financial statements and tax returns correspond directly to the Tax Years Under Examination. We confirm that the scope of the production herein covers all four tax years under examination (2017, 2018, 2019, and 2020), consistent with the scope of IDR No. 7.
II. Identification of Penterra Biopharma International DAC
For purposes of contextualizing the documents produced, we provide the following background information regarding PBI:
Full Legal Name: Penterra Biopharma International DAC
Entity Type: Designated Activity Company organized and existing under the laws of Ireland pursuant to the Irish Companies Act 2014
Registered Office: 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland
Irish Tax Reference Number: 3218764T
Date of Incorporation: March 15, 2012
Managing Director: Aidan Naughton
Ownership Structure: PBI is 100% owned by Penterra Holdings Luxembourg S.à r.l. ("PHL"), a société à responsabilité limitée organized under the laws of the Grand Duchy of Luxembourg, registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés) under number B 168452. PHL is, in turn, 100% owned by Penterra Pharmaceuticals Corp., the U.S. parent company and the Taxpayer in this examination. PHL has elected to be treated as a disregarded entity for U.S. federal income tax purposes pursuant to Treasury Regulations § 301.7701-3. As a consequence of PHL's disregarded entity classification, PBI is treated as directly owned by PPC for U.S. federal income tax purposes. PBI is classified as a controlled foreign corporation ("CFC") within the meaning of Internal Revenue Code § 957(a), and PPC files Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations) with respect to PBI as part of PPC's consolidated federal income tax returns.
Business Function and Activities: PBI serves as the intellectual property-holding company and commercial principal for the non-Americas regions of PPC's global pharmaceutical business. In this capacity, PBI holds economic rights to certain intangible property developed under cost-sharing arrangements with PPC, and additionally licenses certain legacy intellectual property from PPC under an intercompany licensing agreement. PBI manages contract manufacturing and distribution arrangements across the Europe, Middle East and Africa ("EMEA") and Asia-Pacific ("APAC") regions. PBI's key commercial products include Veritaxol (an oncology therapeutic), Imvara (a rheumatology biologic), and Cerulon (a CNS-indication compound). PBI contracts with Penterra Manufacturing Ireland Ltd. ("PMI"), an affiliated Irish entity (Irish Companies Registration Office Number 512347), for contract manufacturing services on a cost-plus basis.
III. Description of Documents Produced
The documents responsive to IDR No. 7 are organized into three tabs, as described in detail below.
A. Tab 1: PBI Irish Statutory Financial Statements (Fiscal Years 2017–2020)
Tab 1 contains the audited statutory financial statements of Penterra Biopharma International DAC for the four fiscal years ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020. Each set of financial statements was prepared in accordance with Irish Generally Accepted Accounting Practice ("Irish GAAP"), specifically Financial Reporting Standard 102 ("FRS 102"), The Financial Reporting Standard applicable in the UK and Republic of Ireland, as issued by the Financial Reporting Council. The financial statements were audited by PBI's independent statutory auditor and were filed with the Irish Companies Registration Office ("CRO") in accordance with the requirements of the Irish Companies Act 2014.
Each set of audited statutory financial statements includes the following components:
• Directors' Report
• Independent Auditor's Report
• Statement of Comprehensive Income
• Balance Sheet (Statement of Financial Position)
• Statement of Changes in Equity
• Cash Flow Statement
• Notes to the Financial Statements
For context and to facilitate the exam team's review, we highlight the following key financial data as reflected in the produced financial statements:
The growth in revenue and pre-tax income over the four-year period is attributable principally to expanded commercialization of Veritaxol and Imvara across EMEA and APAC markets, as well as the launch of Cerulon in key European markets in fiscal year 2019, as detailed in the Directors' Reports and Notes to the Financial Statements for the relevant years.
We also note for the exam team's reference that PBI is subject to the standard Irish corporation tax rate of 12.5% on trading income. In addition, beginning in fiscal year 2016, PBI has claimed benefits under Ireland's Knowledge Development box ("KDB") regime, as provided under Section 769R of the Irish Taxes Consolidation Act 1997, which affords an effective tax rate of 6.25% on qualifying intellectual property income derived from qualifying assets. The application of the KDB regime to PBI's qualifying IP income is reflected in the Notes to the Financial Statements and in the Irish Corporation Tax returns produced under Tab 2.
The documents comprising Tab 1 have been Bates-stamped PPC-IDR7-000001 through PPC-IDR7-000487.
B. Tab 2: PBI Irish Corporation Tax Returns (Fiscal Years 2017–2020)
Tab 2 contains the Irish Corporation Tax returns (Form CT1) filed by PBI with the Irish Revenue Commissioners (An Coimisinéirí Ioncaim) for the four fiscal years ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020. The returns were filed under PBI's Irish Tax Reference Number 3218764T.
The production includes complete copies of each Form CT1 as filed, together with all schedules, supplementary pages, and attachments accompanying each return. The returns reflect PBI's trading income subject to the 12.5% Irish corporation tax rate, as well as income qualifying for the Knowledge Development box regime at the reduced effective rate of 6.25%, consistent with the financial statement disclosures described in Section III.A above.
We note that the Form CT1 returns were prepared with the assistance of Thornbury & Keogh, Chartered Tax Advisors, of 22 Fitzwilliam Square, Dublin 2, D02 YH68, Ireland, which serves as PBI's Irish tax advisor. The lead partner responsible for PBI's Irish tax compliance engagement at Thornbury & Keogh is Ciarán Thornbury.
The documents comprising Tab 2 have been Bates-stamped PPC-IDR7-000488 through PPC-IDR7-000793.
C. Tab 3: Supporting Schedules
In addition to the primary documents requested, and in the spirit of full cooperation with the examination, we are producing under Tab 3 certain supplemental schedules extracted from or derived from PBI's financial statements and tax returns that may be of particular relevance to the exam team's analysis. These supplemental schedules include the following:
1. Intercompany Transactions Schedule. A schedule reflecting intercompany transactions between PBI and related parties for each of the fiscal years 2017 through 2020. This schedule details (a) royalty payments made by PBI to PPC under the legacy intellectual property license agreement (calculated at 4.5% of non-Americas net sales), and (b) cost-sharing payments made by PBI to PPC under the qualified cost-sharing arrangement ("CSA") between PPC and PBI. The intercompany transactions schedule is consistent with the related-party disclosures contained in the Notes to the Financial Statements produced under Tab 1.
2. Revenue Breakdown by Product Line and Territory. A schedule setting forth PBI's revenue for each of the fiscal years 2017 through 2020, disaggregated by product line (Veritaxol, Imvara, and Cerulon) and by geographic territory (sub-divided within the non-Americas regions, including key EMEA and APAC markets). This schedule is derived from management reporting data underlying the financial statements and is consistent with the segment disclosures included in the Notes to the Financial Statements.
3. Headcount Information. A schedule reflecting PBI's employee headcount at year-end for each fiscal year from 2012 (the year of incorporation) through 2020. PBI's workforce grew from 52 employees at its establishment in 2012 to 185 employees by the end of fiscal year 2020. The schedule includes a breakdown by functional category (including commercial operations, regulatory affairs, supply chain management, finance and administration, and medical affairs).
4. Related-Party Disclosures. A compilation of the related-party transaction disclosures from the Notes to the Financial Statements for each of the fiscal years 2017 through 2020, noting transactions between PBI and (a) PPC (the U.S. parent company), (b) PHL (the Luxembourg intermediate holding company), and (c) PMI (Penterra Manufacturing Ireland Ltd., Irish CRO Number 512347), PBI's affiliated Irish contract manufacturer, which provides manufacturing services to PBI on a cost-plus-8% basis pursuant to an intercompany contract manufacturing agreement.
The documents comprising Tab 3 have been Bates-stamped PPC-IDR7-000794 through PPC-IDR7-000862.
IV. Coordination with Irish Tax Advisors
We wish to note for the record that the production of the documents described herein was coordinated with Thornbury & Keogh, Chartered Tax Advisors (Lead Partner: Ciarán Thornbury), PBI's Irish tax advisors, and with PBI's Managing Director, Aidan Naughton. Mr. Naughton and Mr. Thornbury authorized the release of these documents to Calderwood & Harkness LLP for production to the Service in connection with the current examination. We further note that PBI maintains its principal Irish banking relationship with Glenmore Bank Ireland plc.
V. Privilege Reservation
The production of the documents described herein is made without waiver of any applicable privilege, including, without limitation, the attorney-client privilege, the tax practitioner privilege under Internal Revenue Code § 7525, and the work-product protection afforded under Federal Rule of Civil Procedure 26(b)(3) and its equivalents. PPC expressly reserves all rights and objections with respect to the privileged or protected nature of any document or communication, and the production of any document in response to IDR No. 7 shall not be construed as a waiver of any privilege or protection that may apply to any other document or communication.
We note that certain documents responsive to IDR No. 7 that are subject to the attorney-client privilege, the work-product doctrine, or other applicable protections have been withheld from this production. These withheld documents will be identified on a privilege log, which will be produced separately in accordance with the procedures agreed upon between the exam team and PPC's representatives.
In addition, we note that Calderwood & Harkness LLP has entered into a Kovel arrangement with Whitmore Valuation Group LLC, as memorialized in C&H Kovel Letter Reference 1018-00009-KV, dated June 20, 2022. Pursuant to that arrangement, Whitmore Valuation Group LLC is retained as a consulting expert under the direction and control of counsel in connection with the current examination. Any communications between Whitmore Valuation Group LLC and PBI personnel, PPC personnel, or other third parties that were made at the direction of counsel for the purpose of facilitating the rendition of legal advice are privileged under the attorney-client privilege and the work-product doctrine, and such communications have not been produced and will not be produced absent a valid waiver or a court order.
VI. Document Inventory / Index
The following table provides a complete index of the documents produced in response to IDR No. 7:
Total pages produced: 862
VII. Offer of Cooperation
PPC remains committed to cooperating fully and transparently with the Service throughout the current examination. We stand ready to provide any additional information, documentation, or clarification that the exam team may require in connection with its review of the documents produced herein or otherwise.
We note that PPC's U.S. consolidated federal income tax returns (Forms 1120) for the Tax Years Under Examination (2017, 2018, 2019, and 2020), which include PBI-related reporting on IRS Forms 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations), have been or will be produced in response to separate IDRs previously issued or anticipated in the examination. The Forms 5471 will provide the exam team with U.S. tax reporting information regarding PBI that is complementary to the Irish statutory financial statements and Corporation Tax returns produced herein.
Additionally, we note that Crestfield & Associates LLP, PPC's independent auditor and the preparer of PPC's original contemporaneous transfer pricing documentation, is available to provide additional supporting workpapers if requested through appropriate channels. The engagement partner at Crestfield & Associates LLP responsible for PPC's audit is Martin Ogilvy, and the transfer pricing partner is Susan Lam. Any requests for Crestfield & Associates LLP workpapers or supporting materials should be directed to the undersigned or to Leonard Cross, the responsible partner at Calderwood & Harkness LLP for this matter, so that appropriate arrangements can be made.
Please do not hesitate to contact the undersigned at (215) 854-7245 or at gsimmons@calderwoodharkness.com, or Leonard Cross, Responsible Partner, at (212) 558-4312 or at lcross@calderwoodharkness.com, with any questions regarding this production or any other aspect of the examination.
We appreciate your courtesy and professionalism throughout this process and look forward to continuing to work with the exam team.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Garrett Simmons Lead Associate, Tax Department 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 854-7245 Facsimile: (215) 854-7001 E-mail: gsimmons@calderwoodharkness.com Licensed in New York
cc: (via e-mail)
Leonard Cross, Partner, Calderwood & Harkness LLP (Responsible Partner) Sylvia Hartwell, Partner, Calderwood & Harkness LLP (Billing Partner) Leila Nazari, Associate, Calderwood & Harkness LLP Marcus Whitfield, Vice President, Global Tax, Penterra Pharmaceuticals Corp., 2200 Independence Boulevard, Princeton Junction, NJ 08550 Deborah Staines, General Counsel, Penterra Pharmaceuticals Corp. Supervisory Revenue Agent Gerald Meskill, IRS Large Business & International Division (Team Manager)
Enclosures:
As indexed above (Tabs 1–3):
• Tab 1: PBI Audited Statutory Financial Statements, FY 2017, FY 2018, FY 2019, and FY 2020 (4 document sets)
• Tab 2: PBI Irish Corporation Tax Returns (Form CT1), FY 2017, FY 2018, FY 2019, and FY 2020 (4 document sets)
• Tab 3: Supplemental Schedules (Intercompany Transactions, Revenue Breakdown by Product Line and Territory, Headcount Information, and Related-Party Disclosures)
Total primary documents: 8 (4 financial statement sets + 4 tax returns), plus supplemental schedules Total pages: 862
Fiscal Year | Revenue (€) | Pre-Tax Income (€)
FY 2017 | €1,320,000,000 | €585,000,000
FY 2018 | €1,580,000,000 | €740,000,000
FY 2019 | €1,840,000,000 | €890,000,000
FY 2020 | €2,140,000,000 | €1,060,000,000
Tab | Document Description | Bates Range
Tab 1 | PBI Audited Statutory Financial Statements, FY 2017 | PPC-IDR7-000001 – PPC-IDR7-000118
Tab 1 | PBI Audited Statutory Financial Statements, FY 2018 | PPC-IDR7-000119 – PPC-IDR7-000241
Tab 1 | PBI Audited Statutory Financial Statements, FY 2019 | PPC-IDR7-000242 – PPC-IDR7-000367
Tab 1 | PBI Audited Statutory Financial Statements, FY 2020 | PPC-IDR7-000368 – PPC-IDR7-000487
Tab 2 | PBI Irish Corporation Tax Return (Form CT1), FY 2017 | PPC-IDR7-000488 – PPC-IDR7-000564
Tab 2 | PBI Irish Corporation Tax Return (Form CT1), FY 2018 | PPC-IDR7-000565 – PPC-IDR7-000643
Tab 2 | PBI Irish Corporation Tax Return (Form CT1), FY 2019 | PPC-IDR7-000644 – PPC-IDR7-000718
Tab 2 | PBI Irish Corporation Tax Return (Form CT1), FY 2020 | PPC-IDR7-000719 – PPC-IDR7-000793
Tab 3 | Supplemental Schedules (Intercompany Transactions, Revenue Breakdown, Headcount, and Related-Party Disclosures) | PPC-IDR7-000794 – PPC-IDR7-000862

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