CALDERWOOD & HARKNESS LLP Attorneys at Law
1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 764-3200 Facsimile: (215) 764-3201
New York
April 10, 2023
VIA SECURE IRS E-FAX AND FIRST-CLASS MAIL
Revenue Agent Patricia Dunleavy Internal Revenue Service Large Business & International Division 600 Arch Street, Room 6454 Philadelphia, PA 19106
Re: Examination of Penterra Pharmaceuticals Corp. EIN: 22-3741856 Exam Team ID: LB&I-NE-TP-2022-00641 Tax Years Under Examination: 2017, 2018, 2019, 2020 Subject: Response to Information Document Request No. 30 — Knowledge Development box Claims and Irish Revenue Filings C&H Matter No.: 1018-00009
Dear Revenue Agent Dunleavy:
This letter is submitted on behalf of our client, Penterra Pharmaceuticals Corp. ("PPC"), a Delaware corporation headquartered at 2200 Independence Boulevard, Princeton Junction, New Jersey 08550, and publicly traded on the Nasdaq Stock Market under the ticker symbol PPCA. Calderwood & Harkness LLP ("C&H") serves as the authorized representative of PPC pursuant to IRS Form 2848, Power of Attorney and Declaration of Representative, filed with the Internal Revenue Service on June 8, 2022, covering the following C&H attorneys: Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari. This matter is handled under C&H Matter Number 1018-00009.
This letter constitutes PPC's response to Information Document Request No. 30 ("IDR No. 30"), which was issued by your office on February 17, 2023, with a response date of April 10, 2023. IDR No. 30 requested documentation relating to the Knowledge Development box ("KDB") claims made by Penterra Biopharma International DAC ("PBI"), a wholly owned indirect subsidiary of PPC organized under the laws of Ireland, and related Irish Revenue filings for the tax years 2017 through 2020. PPC is producing, concurrently with this letter, the documents and materials described in detail below, subject to the privilege reservations and other qualifications set forth herein.
1. Description of IDR No. 30 Request
IDR No. 30, as received from Revenue Agent Dunleavy on February 17, 2023, requested the following categories of documents and information in connection with the examination of PPC's federal income tax returns for the tax years ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020:
(a) All documentation supporting PBI's claims under Ireland's Knowledge Development box regime, including but not limited to any analyses, memoranda, computations, elections, or filings submitted to, or received from, the Irish Revenue Commissioners in connection with such claims;
(b) Complete copies of PBI's Irish corporation tax returns (Form CT1) as filed with the Irish Revenue Commissioners for tax years (accounting periods) 2017, 2018, 2019, and 2020;
(c) All correspondence between PBI (or its agents or advisors) and the Irish Revenue Commissioners regarding KDB claims for the relevant periods, including any requests for rulings, advance opinions, or clarifications;
(d) All supporting computations and schedules for qualified intellectual property income subject to the KDB reduced rate, including the identification of qualifying assets, the computation of qualifying profits, and the application of the modified nexus fraction; and
(e) All documentation of PBI's qualifying assets and qualifying expenditures under the KDB regime, including registers of qualifying intellectual property, schedules of qualifying research and development expenditures, and any supporting agreements, invoices, or cost analyses underlying such computations.
PPC notes that IDR No. 30 is one of forty-seven (47) Information Document Requests issued by the examination team between June 2022 and September 2023 in connection with the ongoing examination of PPC's federal income tax returns for the tax years under review. PPC has endeavored to respond to each IDR in a timely and complete manner, and the response set forth below is consistent with PPC's continuing cooperation with the examination team.
2. Overview of PBI and the Knowledge Development box Regime
To provide context for the documents produced herein, this Section 2 sets forth background information regarding PBI, the Irish Knowledge Development box regime, and PBI's Irish tax advisors.
2.1 Background on Penterra Biopharma International DAC
Penterra Biopharma International DAC ("PBI") is a Designated Activity Company organized under the laws of Ireland, with its registered office located at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. PBI holds Irish Tax Reference Number 3218764T and is registered with the Irish Companies Registration Office. PBI was incorporated on March 15, 2012, in connection with PPC's restructuring of its international operations to establish PBI as the principal intellectual property holding company and commercial principal for the non-Americas commercialization of PPC's pharmaceutical products.
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, bearing Luxembourg Registre de Commerce et des Sociétés Number B 168452, and with a registered address at 14, rue Aldringen, L-1118 Luxembourg. PHL is itself 100% owned by PPC. For United States federal income tax purposes, PHL is treated as a disregarded entity, such that PBI is treated as a wholly owned controlled foreign corporation ("CFC") of PPC for purposes of Subpart F, the Global Intangible Low-Taxed Income ("GILTI") provisions under Section 951A of the Internal Revenue Code, and the transfer pricing provisions of Section 482 of the Internal Revenue Code.
PBI serves as the intellectual property holding company for non-Americas territories with respect to PPC's key pharmaceutical products and functions as the entrepreneurial principal for the commercialization of those products across the Europe, Middle East, and Africa ("EMEA") and Asia-Pacific ("APAC") regions. In that capacity, PBI manages contract manufacturing and distribution arrangements, oversees regulatory strategy in over sixty-eight (68) country markets, negotiates pricing and reimbursement with governmental health authorities, and coordinates medical affairs and commercial strategy activities across its territory.
As of the close of fiscal year 2020, PBI employed one hundred eighty-five (185) full-time employees, reflecting substantial growth from the fifty-two (52) employees at establishment in 2012. PBI's employee base includes professionals in regulatory affairs, medical affairs, commercial strategy, market access, supply chain management, finance, legal, and human resources functions, all located in Dublin, Ireland. PBI's Managing Director throughout the examination periods was Aidan Naughton, who reported to PPC's Chief Operating Officer and served as a member of PBI's board of directors.
PBI's revenue for fiscal year 2020 was approximately €2.14 billion, with pre-tax income of approximately €1.06 billion. PBI maintained approximately 18,000 square feet of office space at its Sandyford Business Park location in Dublin. During the period 2017 through 2020, PBI's board of directors held a total of forty-two (42) board meetings in Dublin, including regularly scheduled quarterly meetings and special sessions convened to address strategic, regulatory, and commercial matters. PBI made independent pricing decisions across sixty-eight (68) country markets and incurred cumulative regulatory expenditures of €47.2 million during the 2017–2020 period in connection with its activities related to the development, enhancement, and commercialization of qualifying intellectual property.
2.2 Overview of Ireland's Knowledge Development box
Ireland's Knowledge Development box ("KDB") was introduced by way of Ireland's Finance Act 2015 (enacted December 21, 2015, as Part 29A of the Taxes Consolidation Act 1997), and became effective for accounting periods beginning on or after January 1, 2016. The KDB provides a reduced effective corporation tax rate of 6.25% on qualifying profits derived from qualifying assets, as compared to Ireland's standard trading income rate of 12.5%. Qualifying assets under the KDB regime include certain patents, copyrighted software, and supplementary protection certificates ("SPCs") that are the result of qualifying research and development activities.
The KDB regime is designed to be consistent with the Organisation for Economic Co-operation and Development's ("OECD") modified nexus approach as set forth under the Base Erosion and Profit Shifting ("BEPS") Action 5 Final Report (Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, 2015). Under the modified nexus approach, the proportion of income eligible for the reduced rate is determined by reference to a nexus fraction that compares the taxpayer's qualifying expenditures (i.e., expenditures directly incurred by the taxpayer in the development, improvement, or creation of the qualifying asset) to its overall expenditures on the qualifying asset. Qualifying expenditures may be uplifted by 30% (capped at total overall expenditures), consistent with the OECD framework's provision for a "top-up" to ensure that the regime is not unduly restrictive where the taxpayer has incurred some portion of its R&D expenditures through related-party arrangements.
PBI claimed KDB benefits beginning with its fiscal year 2016 (the first year of the regime's applicability) and continued to claim such benefits for fiscal years 2017, 2018, 2019, and 2020 — the years that are the subject of the current examination. The KDB claims relate to qualifying profits attributable to patents and supplementary protection certificates held by PBI with respect to PPC's key pharmaceutical products in non-Americas territories.
2.3 PBI's Irish Tax Advisors
PBI's Irish corporation tax compliance and advisory services, including the preparation of KDB claims and related computations, have been provided throughout the relevant periods by Thornbury & Keogh, Chartered Tax Advisors ("T&K"), located at 22 Fitzwilliam Square, Dublin 2, D02 YH68, Ireland. The lead partner responsible for the PBI engagement at T&K is Ciarán Thornbury, AITI, CTA.
T&K prepared PBI's KDB claims and Irish Revenue filings for the accounting periods 2017 through 2020 and was responsible for the detailed computations of qualifying profits, the identification of qualifying assets, and the application of the modified nexus fraction for each relevant period. T&K also prepared and filed PBI's Irish corporation tax returns (Form CT1) for each year and served as PBI's agent for correspondence with the Irish Revenue Commissioners on KDB-related matters.
C&H has coordinated with T&K on dual-jurisdiction aspects of PPC's transfer pricing defense, including the reconciliation of PBI's Irish tax positions with PPC's U.S. federal income tax positions and the interplay between the cost-sharing arrangement, the legacy IP license, and the KDB qualifying expenditure computations. Certain communications between C&H and T&K relating to legal advice have been withheld on grounds of privilege, as described further in Section 5 below.
3. Documents Produced in Response to IDR No. 30
Set forth below is a description of the documents produced concurrently with this letter in response to IDR No. 30. The documents are organized by tab and are identified by Bates number range. All documents are produced in their original language (English or, where applicable, Irish statutory form); where documents were originally prepared in Irish statutory format, they are accompanied by English-language annotations or translations as necessary. All documents are produced subject to the privilege reservations and other qualifications stated in Sections 5 and 6 of this letter.
3.1 Enumerated List of Produced Documents
Tab 1: PBI Irish Corporation Tax Returns (Form CT1) — Tax Years 2017, 2018, 2019, and 2020
Bates Nos.: PPC-IDR30-000001 through PPC-IDR30-000287
This tab contains four (4) complete sets of Irish corporation tax returns (Form CT1) as filed by PBI with the Irish Revenue Commissioners for the accounting periods ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020. Each return was prepared by Thornbury & Keogh and filed on behalf of PBI within the time limits prescribed by Irish tax law.
Each Form CT1 reflects PBI's trading income for the relevant period, with a bifurcation between (i) qualifying KDB income taxed at the effective rate of 6.25% and (ii) remaining trading income taxed at the standard Irish corporation tax rate of 12.5%. The returns also include disclosures of related-party transactions, including payments made under the cost-sharing arrangement and royalty payments under the legacy IP license agreement with PPC, as well as disclosures relating to PBI's relationship with Penterra Manufacturing Ireland Ltd. ("PMI") and other members of the PPC group.
Tab 2: KDB Claim Schedules and Computations — Tax Years 2017, 2018, 2019, and 2020
Bates Nos.: PPC-IDR30-000288 through PPC-IDR30-000472
This tab contains detailed KDB claim schedules and computations prepared by Thornbury & Keogh for each of the four relevant accounting periods. These schedules include, for each period:
• Identification of qualifying assets held by PBI, including patents and supplementary protection certificates ("SPCs") relating to Veritaxol (oncology), Imvara (immunology), and Cerulon (rare disease) for non-Americas territories;
• Computation of qualifying profits attributable to each qualifying asset, derived from PBI's overall trading income and allocated to qualifying assets based on an income-based methodology consistent with Irish Revenue guidance;
• Application of the modified nexus fraction, computed as qualifying expenditures divided by overall expenditures, multiplied by 130% (the 30% uplift), to determine the proportion of qualifying profits eligible for the reduced 6.25% KDB rate. The modified nexus fraction is capped at 100% in accordance with the statutory provisions; and
• A detailed breakdown between income subject to the 6.25% KDB rate and income subject to the standard 12.5% Irish corporation tax rate for each period.
The schedules demonstrate that PBI's qualifying expenditures (consisting primarily of cost-sharing payments under the CSA, PBI's own regulatory expenditures, and personnel costs for employees engaged in qualifying R&D-related activities) bore a direct and demonstrable nexus to the qualifying assets generating qualifying income for each period.
Tab 3: KDB Election Notifications Filed with Irish Revenue
Bates Nos.: PPC-IDR30-000473 through PPC-IDR30-000498
This tab contains copies of the formal KDB election notifications submitted by PBI (through T&K as agent) to the Irish Revenue Commissioners for each relevant accounting period. Under Irish tax law, a company claiming KDB relief must make a valid election for each accounting period in which it wishes to avail of the reduced rate. The election notifications produced herein confirm that PBI made timely and valid elections for the accounting periods ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020.
Tab 4: Correspondence with Irish Revenue Commissioners Regarding KDB Claims
Bates Nos.: PPC-IDR30-000499 through PPC-IDR30-000561
This tab contains copies of correspondence between PBI (or T&K acting on behalf of PBI) and the Irish Revenue Commissioners relating to PBI's KDB claims for the relevant periods. The correspondence includes routine acknowledgment letters, requests for clarification from Irish Revenue regarding the scope of PBI's qualifying assets, and PBI's responses thereto.
PPC notes that, to the extent any correspondence between PBI and T&K (or between T&K and Irish Revenue on PBI's behalf) is protected by solicitor-client privilege, legal advice privilege, or litigation privilege under Irish law, or is otherwise subject to applicable privilege protections, such documents have been withheld from this production and will be logged on the privilege log referenced in Section 5 below. The documents produced in this tab represent non-privileged correspondence only.
Tab 5: PBI Qualifying Asset Register
Bates Nos.: PPC-IDR30-000562 through PPC-IDR30-000634
This tab contains PBI's register of qualifying assets as maintained for purposes of the KDB regime. The register identifies each qualifying asset owned by PBI, including:
• Patent numbers, patent jurisdictions, patent grant dates, and patent expiration dates for all patents held by PBI covering Veritaxol, Imvara, and Cerulon in non-Americas territories;
• Supplementary protection certificate numbers, granting authorities, effective dates, and expiration dates for SPCs held by PBI in European Union member states; and
• A mapping of each qualifying asset to the relevant product line and the associated qualifying income stream.
The register reflects that PBI holds a substantial portfolio of qualifying intellectual property across multiple jurisdictions in the EMEA and APAC regions, and that each qualifying asset identified in the register was developed in whole or in part through qualifying R&D activities in which PBI participated as a cost-sharing participant or through PBI's own regulatory and development expenditures.
Tab 6: PBI Qualifying Expenditure Schedules
Bates Nos.: PPC-IDR30-000635 through PPC-IDR30-000798
This tab contains schedules documenting PBI's qualifying expenditures incurred in the development, enhancement, and exploitation of qualifying assets for each relevant accounting period. The qualifying expenditure schedules include the following categories of expenditures:
R&D Cost-Sharing Payments Under the Cost-Sharing Arrangement ("CSA"):
PBI is a participant in the Qualified Cost-Sharing Arrangement (the "CSA") among PPC, PBI, and certain other controlled participants, which has been in effect since July 1, 2012. Under the CSA, PBI bears a share of the total qualified R&D costs incurred by the participant group in proportion to its reasonably anticipated benefits from the intangible property being developed. PBI's cost-sharing percentages and corresponding payment amounts for the relevant years were as follows:
PBI's cost-sharing payments represent a significant component of its qualifying expenditures for purposes of the modified nexus fraction, as these payments directly fund the R&D activities giving rise to the qualifying assets identified in the qualifying asset register (Tab 5).
PBI's Own Regulatory Expenditures:
PBI incurred cumulative regulatory expenditures of €47.2 million during the 2017–2020 period. These expenditures relate to regulatory submissions, clinical trial support, pharmacovigilance activities, and other regulatory affairs activities undertaken by PBI's Dublin-based regulatory team in connection with the development, maintenance, and enhancement of qualifying assets in non-Americas territories.
Personnel Costs for PBI Employees Engaged in Qualifying R&D-Related Activities:
PBI's qualifying expenditure schedules also include the personnel costs (salaries, benefits, and related costs) for PBI employees who were directly engaged in qualifying R&D-related activities, including employees in the regulatory affairs, medical affairs, and clinical development functions. These personnel costs are allocated to qualifying expenditures based on time records and functional analyses maintained by PBI.
Tab 7: PBI Financial Statements (Irish Statutory Accounts) — Tax Years 2017, 2018, 2019, and 2020
Bates Nos.: PPC-IDR30-000799 through PPC-IDR30-001102
This tab contains PBI's Irish statutory financial statements for each of the four relevant accounting periods. The financial statements include the balance sheet, profit and loss account, statement of changes in equity, cash flow statement, and notes to the financial statements for each year, as prepared in accordance with Financial Reporting Standard 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland) and filed with the Irish Companies Registration Office.
The financial statements reflect, among other things, PBI's revenue of approximately €2.14 billion and pre-tax income of approximately €1.06 billion for fiscal year 2020, as well as the corresponding figures for fiscal years 2017, 2018, and 2019. The financial statements also include disclosures of related-party transactions, including transactions with PPC, PHL, PMI, and other entities within the PPC group. PBI's principal Irish bank throughout the relevant periods was Glenmore Bank Ireland plc.
Tab 8: Cost-Sharing Arrangement Summary Relevant to KDB
Bates Nos.: PPC-IDR30-001103 through PPC-IDR30-001148
This tab contains a summary schedule prepared by C&H in coordination with T&K, showing the interplay between the CSA (effective July 1, 2012) and the KDB qualifying expenditure computation for each relevant accounting period. The summary illustrates specifically how PBI's cost-sharing payments under the CSA feed into the numerator of the modified nexus fraction for purposes of computing the proportion of qualifying income eligible for the 6.25% KDB rate.
The summary also identifies the treatment of acquisition costs and related-party outsourcing costs within the overall expenditure denominator, and demonstrates that PBI's modified nexus fraction — after application of the 30% uplift — results in a proportion of qualifying income that is consistent with the substance of PBI's participation in the R&D activities giving rise to the qualifying assets.
Tab 9: Legacy IP Royalty Payments Schedule
Bates Nos.: PPC-IDR30-001149 through PPC-IDR30-001187
This tab contains a schedule of royalty payments made by PBI to PPC under the legacy intellectual property license agreement (the "Legacy IP License"), which covers certain pre-2012 vintage pharmaceutical compounds for non-Americas territories. The royalty rate under the Legacy IP License is 4.5% of net sales. The royalty payments for the relevant periods were as follows:
PPC notes that income derived from legacy compounds subject to the Legacy IP License is generally not subject to KDB treatment, as these compounds are pre-2012 vintage products that were not developed through PBI's qualifying R&D activity under the modified nexus approach. The decline in legacy compound net sales over the 2017–2020 period reflects the natural lifecycle of these older products and the corresponding growth in revenue from newer products (Veritaxol, Imvara, and Cerulon) that are the subject of PBI's KDB claims.
4. Explanatory Notes
4.1 Relationship of KDB Claims to Transfer Pricing
PPC provides the following explanatory notes to assist the examination team in understanding the relationship between PBI's KDB claims and the transfer pricing issues under examination.
PBI's KDB claims are a function of Irish domestic tax law — specifically, Part 29A of the Taxes Consolidation Act 1997 — and relate to PBI's treatment of qualifying intellectual property income under the modified nexus approach as adopted by Ireland in conformity with the OECD's BEPS Action 5 framework. The KDB effective rate of 6.25% applies only to that portion of PBI's trading income that is attributable to qualifying assets where PBI can demonstrate the requisite nexus between its qualifying expenditures and the qualifying income derived from those assets. PBI's remaining trading income — that is, income not qualifying for KDB treatment — continues to be subject to the standard Irish corporation tax rate of 12.5%.
PPC emphasizes that PBI's transfer pricing positions, including the cost-sharing ratios under the CSA and the royalty rate under the Legacy IP License, are independent of and analytically distinct from PBI's KDB claims. The arm's-length nature of PBI's intercompany pricing is determined by reference to the standards set forth in Section 482 of the Internal Revenue Code, the Treasury Regulations thereunder (including, without limitation, Treas. Reg. §§ 1.482-4 and 1.482-7), and the applicable provisions of Irish transfer pricing law. PBI's KDB claim does not affect, alter, or otherwise bear upon the arm's-length nature of the intercompany pricing between PBI and PPC or other members of the PPC group.
PPC further notes that the KDB regime, by design, applies to income after intercompany pricing has been determined on an arm's-length basis. The KDB qualifying profit computation takes as its starting point PBI's trading income as computed under Irish tax law — which itself incorporates intercompany transactions priced at arm's length — and then applies the modified nexus fraction to determine the portion of that income eligible for the reduced rate. Accordingly, the KDB claim is downstream of, and dependent upon, the transfer pricing analysis, not a substitute for or alternative to it.
4.2 Contract Manufacturing Arrangement
PPC notes for completeness that Penterra Manufacturing Ireland Ltd. ("PMI"), an Irish private limited company (Companies Registration Office Number 512347), with its registered address at Unit 7, Ringaskiddy Industrial Estate, Co. Cork T12 PX29, Ireland, serves as a contract manufacturer for PBI under a contract manufacturing arrangement providing for compensation on a cost-plus basis at cost plus an eight percent (8%) markup. PMI employed approximately six hundred twenty (620) manufacturing and quality-assurance employees as of the close of fiscal year 2020.
PMI's manufacturing income under the contract manufacturing arrangement is not relevant to PBI's KDB claims, as PMI does not own qualifying intellectual property and its income is not treated as qualifying profits for KDB purposes. However, PMI may be referenced in PBI's CT1 returns in connection with related-party disclosures required under Irish tax law, and PMI's cost-plus compensation is reflected in PBI's profit and loss account as a cost of goods sold.
4.3 Key Product Revenue Context
To provide further context for the documents produced in this response, PPC provides the following summary of the three key pharmaceutical products generating non-Americas revenue for PBI during the examination periods:
Veritaxol (Oncology): Veritaxol is PPC's leading oncology product, approved for multiple cancer indications across EMEA and APAC jurisdictions. For fiscal year 2020, non-Americas net sales of Veritaxol were approximately $1.34 billion, out of global net sales of approximately $3.12 billion. Veritaxol is covered by multiple patents and supplementary protection certificates held by PBI in non-Americas territories and constitutes the largest component of PBI's qualifying KDB income.
Imvara (Immunology): Imvara is PPC's principal immunology product, indicated for the treatment of several autoimmune conditions. For fiscal year 2020, non-Americas net sales of Imvara were approximately $0.79 billion, out of global net sales of approximately $1.87 billion. Patents and SPCs relating to Imvara in non-Americas territories are held by PBI and constitute qualifying assets for KDB purposes.
Cerulon (Rare Disease): Cerulon is an orphan drug developed by PPC for the treatment of a rare genetic metabolic disorder. For fiscal year 2020, non-Americas net sales of Cerulon were approximately $0.28 billion, out of global net sales of approximately $0.62 billion. Cerulon's intellectual property in non-Americas territories is held by PBI and qualifies under the KDB regime.
5. Privilege Reservation
PPC and PBI expressly reserve all claims of attorney-client privilege, attorney work-product protection, tax practitioner privilege under Section 7525 of the Internal Revenue Code, and any other applicable privilege or protection with respect to documents that have been withheld from this production. The documents withheld on grounds of privilege have been identified and described on the privilege log maintained by C&H in connection with all IDR responses in this examination. The master privilege log, which is updated on a rolling basis, was most recently supplemented on March 28, 2023, and is cross-referenced herein.
Specifically, PPC notes that any privileged communications between PBI and Thornbury & Keogh relating to legal advice on KDB claims, including but not limited to memoranda, emails, and draft analyses prepared by T&K in its capacity as legal advisor to PBI on Irish tax matters, have been withheld from this production and logged on the privilege log. PBI's privilege claims with respect to such communications are asserted under the legal advice privilege recognized under Irish law and, to the extent applicable, under the attorney-client privilege and work-product doctrine under U.S. federal law.
PPC further notes that documents produced to or by Whitmore Valuation Group LLC ("WVG") pursuant to the Kovel arrangement established under the Kovel Letter bearing Reference 1018-00009-KV, executed on June 20, 2022, remain privileged to the extent they constitute attorney work product or were prepared at the direction of C&H as counsel for PPC. The Kovel arrangement extends the protections of the attorney-client privilege and work-product doctrine to communications and materials shared with WVG in its capacity as a non-testifying expert retained to assist counsel in the evaluation of transfer pricing issues in this examination. No documents subject to the Kovel privilege have been produced in response to IDR No. 30.
PPC does not intend, by producing any document in response to IDR No. 30, to waive any privilege or protection that may apply to any other document, whether or not related to the subject matter of the documents produced.
6. Reservation of Rights
PPC's production of documents in response to IDR No. 30 does not constitute a waiver of any objection to the scope, relevance, burden, or admissibility of the documents or categories of documents requested in IDR No. 30 or in any other IDR issued in connection with this examination. PPC reserves all rights to object to the use of any document produced herein in any administrative, judicial, or other proceeding.
PPC reserves the right to supplement this response if additional responsive documents are identified in the course of PPC's continuing review of its files and records, or in the course of coordination with T&K or other advisors.
PPC does not, by producing documents relating to PBI's Irish tax treatment, concede the relevance of PBI's Irish KDB claims or Irish corporation tax filings to the United States transfer pricing issues under examination. PPC's production of these documents is made in a spirit of cooperation and without prejudice to PPC's position that PBI's Irish domestic tax treatment is a matter of Irish law and does not bear upon the arm's-length nature of the intercompany transactions between PPC and PBI.
PPC continues to maintain that all intercompany transactions between PPC, PBI, and other members of the PPC group for tax years 2017, 2018, 2019, and 2020 reflect arm's-length pricing in compliance with Section 482 of the Internal Revenue Code and the regulations thereunder.
7. Contact Information and Availability
Should you have any questions regarding this response or the documents produced herein, please direct your inquiries to the following C&H personnel:
Primary Contact for IDR Responses: Garrett Simmons, Lead Associate Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 764-3247
Email: gsimmons@calderwoodharkness.com
Responsible Partner: Leonard Cross, Partner, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 764-3210
Email: lcross@calderwoodharkness.com
We remain available for a conference call or in-person meeting at your convenience to discuss the produced documents, to walk through the KDB claim schedules and computations, or to address any additional questions the examination team may have regarding PBI's Irish tax filings or the relationship of the KDB claims to the transfer pricing issues under examination. Please do not hesitate to contact Mr. Simmons to arrange a mutually convenient date and time.
Closing
We trust that the foregoing response and the accompanying document production are responsive to IDR No. 30. PPC remains committed to cooperating fully with the examination team and to providing all non-privileged information and documents reasonably necessary to facilitate the resolution of the issues under examination.
Respectfully submitted on behalf of Penterra Pharmaceuticals Corp.,
CALDERWOOD & HARKNESS LLP
By: ________
Leonard Cross Partner, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103
Enclosures: Tabs 1 through 9 as described in Section 3.1 above (Bates Nos. PPC-IDR30-000001 through PPC-IDR30-001187)
cc (via email):
Marcus Whitfield, Vice President, Global Tax, Penterra Pharmaceuticals Corp., 2200 Independence Boulevard, Princeton Junction, NJ 08550
Deborah Staines, General Counsel, Penterra Pharmaceuticals Corp., 2200 Independence Boulevard, Princeton Junction, NJ 08550
Sylvia Hartwell, Partner, Calderwood & Harkness LLP
Garrett Simmons, Lead Associate, Calderwood & Harkness LLP
Leila Nazari, Senior Associate, Calderwood & Harkness LLP
Ciarán Thornbury, Partner, Thornbury & Keogh, Chartered Tax Advisors, 22 Fitzwilliam Square, Dublin 2, D02 YH68, Ireland (courtesy copy — re: documents produced relating to T&K work product)
| Tax Year | PBI Cost-Share % | Total Qualified R&D Costs | PBI Share of R&D Costs |
| 2017 | 38.2% | $487.3 million | $186.15 million |
| 2018 | 39.6% | $523.8 million | $207.42 million |
| 2019 | 41.1% | $561.2 million | $230.65 million |
| 2020 | 42.7% | $598.4 million | $255.52 million |
| Tax Year | Non-Americas Net Sales (Legacy Compounds) | Royalty Rate | Royalty Payment |
| 2017 | $814.6 million | 4.5% | $36.66 million |
| 2018 | $762.3 million | 4.5% | $34.30 million |
| 2019 | $691.8 million | 4.5% | $31.13 million |
| 2020 | $624.1 million | 4.5% | $28.08 million |