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CONFIDENTIAL — TAX EXAMINATION MATERIALS

CALDERWOOD & HARKNESS LLP Attorneys at Law

1735 Market Street, Suite 3100 Philadelphia, PA 19103 Tel: (215) 564-8200	Fax: (215) 564-8201
600 Lexington Avenue New York, NY 10022 Tel: (212) 709-5500	Fax: (212) 709-5501

September 29, 2023

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND ELECTRONIC DELIVERY (IRS SECURE MESSAGING)

Revenue Agent Patricia Dunleavy Large Business & International Division Internal Revenue Service Re: Examination of Penterra Pharmaceuticals Corp.

Employer Identification Number: 22-3741856 Tax Years Under Examination: 2017, 2018, 2019, 2020 Exam Team ID: LB&I-NE-TP-2022-00641

Re: Response to Information Document Request No. 47 (Final IDR)

Dear Revenue Agent Dunleavy:

This firm serves as authorized representative and counsel of record for Penterra Pharmaceuticals Corp. ("PPC" or the "Company") in the above-referenced examination. I write in my capacity as Responsible Partner, Tax Department, Calderwood & Harkness LLP, on behalf of PPC and pursuant to the IRS Form 2848, Power of Attorney and Declaration of Representative, filed on June 8, 2022, which authorizes Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari, all of Calderwood & Harkness LLP, to represent PPC before the Internal Revenue Service in connection with this examination.

We acknowledge receipt of Information Document Request No. 47, dated September 8, 2023, which we understand to be the final Information Document Request issued in this examination. The examination was formally opened on May 16, 2022, and the IRS examination team has issued a total of forty-seven (47) IDRs between June 2022 and September 2023. PPC has responded to each IDR in the order received and within the agreed-upon response timelines established pursuant to the IDR enforcement process. This response produces supplemental documentation as requested in IDR No. 47, including additional employee compensation data and travel records for Penterra Biopharma International DAC ("PBI"), PPC's Irish subsidiary, as well as updated headcount reconciliation data, supplemental intercompany documentation, and related materials, all as further described herein.

PPC has undertaken a thorough and diligent search of its records, and of the records of PBI maintained in Dublin, Ireland, to compile the responsive documents enclosed with this letter. We believe this response is complete and responsive to each sub-item set forth in IDR No. 47.

Section 1: Summary of IDR No. 47 Requests

For ease of reference and to facilitate the examination team's review, we restate below each sub-item contained in IDR No. 47, as issued on September 8, 2023:

(a) Supplemental employee compensation data for PBI personnel based in Dublin, Ireland, for each of the tax years 2017, 2018, 2019, and 2020, including breakdowns of base salary, bonus compensation, and benefits for key decision-making personnel. This request supplements prior compensation data produced in response to IDR Nos. 8 and 22.

(b) Travel records for PBI employees traveling between Dublin, Ireland, and PPC's corporate headquarters in Princeton Junction, New Jersey, as well as travel to other locations worldwide, for the period covering tax years 2017 through 2020, inclusive.

(c) Travel records for PPC U.S.-based employees traveling to PBI's offices at Sandyford Business Park, Dublin, Ireland, during tax years 2017 through 2020, inclusive.

(d) Any additional intercompany service agreements, management fee agreements, or related documentation not previously produced in response to prior IDRs during this examination.

(e) An updated headcount reconciliation for PBI, reconciling the growth in PBI's employee base from fifty-two (52) employees at the time of PBI's incorporation in 2012 to one hundred eighty-five (185) employees as of year-end 2020, broken down by function and by year.

We address each of these sub-items in turn below and describe the responsive documents being produced herewith.

Section 2: Responsive Documents — Employee Compensation Data

2.1 PBI Employee Compensation Summaries (2017–2020)

In response to sub-item (a) of IDR No. 47, PPC produces herewith anonymized compensation summaries for all PBI personnel based in Dublin, Ireland, for each of the tax years 2017, 2018, 2019, and 2020. These summaries have been organized by functional area to facilitate the examination team's review and to provide a clear picture of PBI's operational structure and the distribution of human capital across its core business functions. The functional areas reflected in the compensation summaries are as follows:

(i) Regulatory Affairs; (ii) Medical Affairs; (iii) Commercial Strategy; (iv) Supply Chain and Distribution Management; (v) Finance and Administration; and (vi) Executive Management.

Each compensation summary includes, for each employee, the following data points: (1) anonymized employee identifier; (2) functional department; (3) job title and grade level; (4) annual base salary; (5) annual bonus compensation (both target and actual paid); (6) benefits and allowances, including pension contributions, health insurance, and housing allowances where applicable; and (7) total annual compensation. The summaries also include aggregated compensation data by department, allowing for comparison of total labor costs across functional areas for each year of the examination period.

The compensation data encompasses all one hundred eighty-five (185) employees on PBI's payroll as of December 31, 2020, and includes historical compensation data for all employees on PBI's payroll at any point during the examination period, including employees who departed PBI during 2017–2020. Named compensation detail is provided for PBI's Managing Director, Aidan Naughton, and other senior personnel, as described further in Section 2.2 below, consistent with the specific requests made by the examination team during the conference call of September 5, 2023.

All compensation reflected in these summaries was paid in euros through PBI's operating accounts maintained at Glenmore Bank Ireland plc, PBI's primary banking institution in Ireland. Currency conversions to U.S. dollars have been provided at the applicable annual average exchange rate for each tax year, as reported by the European Central Bank, to facilitate comparison with PPC's consolidated financial statements.

The compensation data produced herein demonstrates that PBI personnel were compensated at market rates consistent with their decision-making authority and the scope of their functions performed in Dublin. Compensation levels for PBI's key decision-makers are commensurate with the levels observed at comparable pharmaceutical companies operating in the Dublin market, as reflected in the benchmarking studies conducted by Cascade Strategy Partners and previously produced in connection with IDR No. 22 (Bates Nos. PPC-IDR22-003417 through PPC-IDR22-003489). The fact that PBI employed senior professionals at competitive market compensation rates, across multiple functional areas, is consistent with and corroborative of PBI's economic substance and its role as the entrepreneurial principal for non-Americas commercialization activities.

The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-000001 through PPC-IDR47-000347.

2.2 Key Personnel Compensation Detail

In further response to sub-item (a), and as specifically requested during the conference call of September 5, 2023, between Revenue Agent Dunleavy, Supervisory Revenue Agent Meskill, and undersigned counsel, PPC produces herewith detailed compensation data for PBI's senior decision-making personnel, identified by name and title. These individuals occupy leadership positions at PBI and are responsible for directing PBI's core business operations in Dublin and across PBI's non-Americas markets. The key personnel for whom detailed compensation data is produced are as follows:

• Aidan Naughton, Managing Director, PBI (2014–present);

• Dr. Claire Brennan, Vice President, Regulatory Affairs (2013–present);

• Seamus Gallagher, Vice President, Commercial Strategy (2015–present);

• Niamh Kavanagh, Head of Supply Chain and Distribution Management (2016–present); and

• Dr. Rajesh Muthukumar, Head of Medical Affairs (2015–present).

The compensation data for each of these individuals includes the same data points described in Section 2.1 above, as well as details regarding equity-based compensation (PPC restricted stock units granted through PPC's global equity incentive plan), long-term incentive plan participation, and severance or change-of-control provisions, where applicable.

These data are produced to support PPC's position that PBI's senior personnel exercised independent judgment and performed substantive management and decision-making functions in Dublin with respect to the non-Americas commercialization of PPC's key pharmaceutical products. Specifically, the compensation data is probative of the following points relevant to PBI's DEMPE (Development, Enhancement, Maintenance, Protection, and Exploitation) functions:

• Pricing Decisions: Mr. Gallagher and his Commercial Strategy team were responsible for setting ex-manufacturer prices and negotiating reimbursement and formulary access across sixty-eight (68) country markets in Europe, Asia-Pacific, the Middle East, and Africa. These pricing decisions were made in Dublin and in the relevant local markets, reflecting PBI's assessment of competitive dynamics, local regulatory requirements, and health technology assessment frameworks in each jurisdiction.

• Regulatory Submission Strategy: Dr. Brennan and the Regulatory Affairs team directed PBI's regulatory submission strategy, overseeing a cumulative regulatory spend of approximately €47.2 million during 2017–2020. This expenditure encompassed submissions to the European Medicines Agency ("EMA"), national competent authorities in the EU member states, the UK Medicines and Healthcare products Regulatory Agency ("MHRA"), and regulatory authorities in Asia-Pacific, Middle East, and African markets. The Regulatory Affairs team in Dublin had authority to approve and execute these submissions without direction from PPC's U.S. operations.

• Distribution Partner Selection and Management: Ms. Kavanagh and the Supply Chain and Distribution Management team selected and managed third-party distributors and logistics partners across PBI's non-Americas territories. Distribution agreements were negotiated and executed in Dublin, with Ms. Kavanagh and her team exercising independent authority over partner selection, contract terms, and performance management.

• Medical Affairs Activities: Dr. Muthukumar directed PBI's medical affairs programs in non-Americas territories, including key opinion leader engagement, investigator-sponsored research programs, and medical information services for Veritaxol, Imvara, and Cerulon.

The compensation levels of these individuals, and the functional responsibilities to which they correspond, are consistent with the functional analysis previously produced in PPC's response to IDR No. 8 (Bates Nos. PPC-IDR08-000112 through PPC-IDR08-000298) and with PPC's contemporaneous transfer pricing documentation prepared by Crestfield & Associates LLP.

The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-000348 through PPC-IDR47-000512.

Section 3: Responsive Documents — Travel Records

3.1 PBI Employee Travel Records (2017–2020)

In response to sub-item (b) of IDR No. 47, PPC produces herewith travel records for PBI employees based in Dublin who traveled during the tax years 2017 through 2020. These records have been compiled from PBI's Concur Travel & Expense system and supplemented with data from PBI's travel management company, Aldermere Services Inc.. The travel records include the following information for each trip: (1) employee name and title; (2) dates of travel; (3) destination city and country; (4) stated business purpose; (5) associated project or business unit code; and (6) total travel expenditure.

The travel records demonstrate the following patterns, which are material to the issues under examination:

Travel to Non-Americas Markets. The overwhelming majority of PBI employee travel during 2017–2020 was directed toward non-Americas markets where PBI performs commercialization, regulatory, and medical affairs functions. PBI employees traveled extensively throughout Europe (including the United Kingdom, Germany, France, Spain, Italy, and the Nordics), as well as to Japan, South Korea, Australia, the United Arab Emirates, Saudi Arabia, South Africa, and other markets within PBI's geographic scope. This travel was undertaken for purposes including regulatory authority meetings, distributor conferences, pricing and reimbursement negotiations, key opinion leader engagement, commercial launch activities, and medical congress participation.

The volume and nature of this travel are consistent with PBI's role as the principal for non-Americas commercialization of Veritaxol, Imvara, and Cerulon, and they demonstrate that PBI's Dublin-based personnel performed substantive business functions in the markets they served.

Travel to PPC Headquarters in Princeton Junction, NJ. The travel records also reflect a comparatively limited number of trips by certain PBI employees to PPC's corporate headquarters at 2200 Independence Boulevard, Princeton Junction, NJ 08550. These trips were undertaken for the following purposes:

(i) Coordination meetings related to global product development and launch sequencing; (ii) Administrative meetings related to the cost-sharing arrangement ("CSA") between PPC and PBI, including annual true-up discussions and CSA steering committee sessions; (iii) Research and development project review meetings, at which PBI personnel provided input on development program priorities as a cost-sharing participant under the CSA; and (iv) PPC Board of Directors and global management team meetings at which PBI's Managing Director, Mr. Naughton, attended in his capacity as a PBI representative.

Importantly, the travel records reflect that PBI employees traveling to Princeton Junction did so for coordination and information-sharing purposes, and that these visits did not involve the direction or control of PBI's commercial operations by PPC's U.S.-based management. PBI's commercial decisions continued to be made in Dublin and in the relevant non-Americas markets, consistent with PBI's role and functions.

The travel records for PBI employees bear the following Bates numbers: PPC-IDR47-000513 through PPC-IDR47-001284.

3.2 PPC U.S. Employee Travel to Dublin (2017–2020)

In response to sub-item (c) of IDR No. 47, PPC produces herewith travel records for PPC U.S.-based employees who traveled to PBI's offices located at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland, during tax years 2017 through 2020. These records have been compiled from PPC's Harborview Solutions Travel & Expense system and verified against PPC's corporate travel booking records.

The travel records have been organized by calendar year and by PPC department. The PPC departments from which employees traveled to Dublin during the examination period include:

• Research & Development: R&D personnel traveled to Dublin primarily for CSA-related meetings, including R&D project reviews and discussions regarding PBI's cost-sharing contributions and intangible development activity participation. These visits typically coincided with quarterly CSA steering committee meetings.

• Corporate Tax: Members of PPC's global tax department, under the supervision of Marcus Whitfield, VP, Global Tax, traveled to Dublin for transfer pricing documentation reviews, intercompany transaction reconciliations, and discussions with PBI's finance team regarding compliance with applicable tax requirements in Ireland and the United States.

• Finance: PPC finance personnel traveled to Dublin for purposes related to consolidated financial reporting, internal audit procedures, and Sarbanes-Oxley compliance testing of PBI's internal controls over financial reporting.

The records reflect that PPC U.S. employee travel to Dublin was limited in both frequency and scope. Over the four-year examination period, a total of approximately seventy-three (73) individual trips were recorded, with the average trip duration being approximately two to three business days. The stated business purposes for these trips are consistently described in the records as coordination, review, and compliance-related activities — not as direction or management of PBI's commercial operations.

These records support PPC's position that the DEMPE functions for non-Americas territories were controlled and performed by PBI in Dublin. PPC U.S. personnel did not travel to Dublin to direct, manage, or otherwise control PBI's pricing decisions, regulatory strategy, distribution partner relationships, or other commercial operations. The limited travel that occurred was consistent with the normal level of coordination and oversight expected within a multinational corporate group and does not indicate that PBI's decision-making authority was, in substance, exercised from the United States.

The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-001285 through PPC-IDR47-001631.

Section 4: Responsive Documents — Supplemental Intercompany Service and Management Fee Documentation

In response to sub-item (d) of IDR No. 47, PPC has conducted a comprehensive review of its records to determine whether any intercompany service agreements, management fee agreements, or related documentation have not been previously produced in this examination.

PPC confirms that all material intercompany service and management fee agreements between PPC and its affiliates, including PBI, have been previously produced in response to prior IDRs. Specifically, the following agreements and related documentation were previously produced and remain the operative agreements for the examination period:

• Qualified Cost Sharing Arrangement ("CSA"): The cost-sharing arrangement between PPC and PBI, dated March 15, 2012, as amended, was produced in its entirety in PPC's response to IDR No. 2 (Bates Nos. PPC-IDR02-000001 through PPC-IDR02-000187). The CSA governs the sharing of intangible development costs between PPC and PBI, with PBI's cost-sharing percentage based on its reasonably anticipated benefits from the intangible property developed under the arrangement.

• Legacy IP License Agreement: The license agreement pursuant to which PBI obtained rights to pre-CSA intangible property, executed contemporaneously with the CSA on March 15, 2012, was produced in PPC's response to IDR No. 3 (Bates Nos. PPC-IDR03-000001 through PPC-IDR03-000124). This agreement provides for a royalty rate of 4.5% of net sales attributable to the licensed pre-CSA intangibles.

• PMI Contract Manufacturing Agreement: The contract manufacturing agreement between PPC Manufacturing Ireland Ltd. ("PMI") and PBI, pursuant to which PMI manufactures finished pharmaceutical products for PBI's non-Americas markets at a cost-plus-eight-percent (cost + 8%) markup, was produced in PPC's response to IDR No. 10 (Bates Nos. PPC-IDR10-000001 through PPC-IDR10-000093).

Although PPC confirms that no additional material agreements exist beyond those already produced, PPC does produce herewith the following supplemental documentation that was not previously included in prior IDR responses:

• Updated intercompany service invoices for shared corporate services (including global IT infrastructure, software licensing, corporate insurance allocations, and treasury management services) for the fiscal years 2019 and 2020. These invoices were prepared on a quarterly basis and reflect charges allocated to PBI based on agreed-upon allocation keys, primarily headcount and revenue-based allocation methodologies.

• Supporting allocation schedules for the 2019 and 2020 shared corporate service charges, which detail the allocation methodology, the allocation keys applied, the total shared cost pool for each service category, and PBI's allocated share.

PPC notes that the intercompany service charges reflected in these invoices and allocation schedules are consistent with the methodology described in PPC's transfer pricing documentation and comply with the arm's-length standard under IRC § 482 and Treas. Reg. § 1.482-9.

The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-001632 through PPC-IDR47-001798.

Section 5: Responsive Documents — Updated PBI Headcount Reconciliation

In response to sub-item (e) of IDR No. 47, PPC produces herewith a year-by-year headcount reconciliation for PBI, covering the period from PBI's date of incorporation on March 15, 2012, through year-end 2020. The reconciliation reflects PBI's total employee headcount at each year-end, broken down by functional department, and provides a comprehensive view of PBI's operational growth over the relevant period.

The headcount reconciliation is organized by the following functional departments:

• Regulatory Affairs

• Medical Affairs

• Commercial Strategy / Marketing

• Supply Chain / Distribution Management

• Finance / Administration

• Executive / Management

As reflected in the reconciliation, PBI's employee base grew from fifty-two (52) employees at the time of its incorporation in 2012 to one hundred eighty-five (185) employees as of December 31, 2020. This growth was steady and deliberate, reflecting PBI's expanding operational capacity in connection with the commercialization of PPC's key pharmaceutical products — Veritaxol, Imvara, and Cerulon — across non-Americas markets. The headcount growth was concentrated in the functional areas most directly tied to PBI's commercialization activities, particularly regulatory affairs, commercial strategy, and supply chain management.

The headcount reconciliation further demonstrates the following trends during the 2017–2020 examination period:

• PBI's headcount grew from approximately one hundred forty-one (141) employees at year-end 2016 to one hundred eighty-five (185) employees at year-end 2020, an increase of approximately thirty-one percent (31%) over the four-year examination period.

• The most significant headcount growth occurred in the Commercial Strategy / Marketing function, reflecting PBI's expanding geographic footprint and the sequential launch of Imvara and Cerulon in additional non-Americas markets during 2017–2019.

• The Regulatory Affairs function also experienced meaningful growth, driven by the increasing volume of regulatory submissions required to support market authorizations across sixty-eight (68) country markets, including type II variation applications, periodic safety update reports, and post-marketing commitments.

• The Supply Chain / Distribution Management function grew in parallel with PBI's expanding distribution network, as PBI onboarded new third-party distribution partners in emerging markets during the examination period.

PPC notes that PBI's headcount growth during the examination period corresponded to PBI's increasing cost-sharing percentages under the CSA. PBI's cost-sharing percentage rose from 38.2% in 2017 to 42.7% in 2020, reflecting PBI's growing share of the reasonably anticipated benefits from the intangible property developed under the CSA. This increase was driven by PBI's growing non-Americas revenue, which in turn was supported by the expanded operational capacity reflected in the headcount data.

The headcount reconciliation is also cross-referenced to the minutes of forty-two (42) PBI board meetings held in Dublin during the 2017–2020 examination period. Board meeting minutes reflecting discussions and approvals of PBI staffing plans, organizational restructuring, and hiring budgets were previously produced in response to IDR No. 14 (Bates Nos. PPC-IDR14-000201 through PPC-IDR14-000487). The headcount reconciliation produced herewith is consistent with the staffing plans discussed and approved at those board meetings, further demonstrating that PBI's growth was the product of deliberate strategic planning undertaken by PBI's management and board in Dublin.

The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-001799 through PPC-IDR47-001893.

Section 6: Document Production Log

Set forth below is an itemized log of all documents produced in connection with this response to IDR No. 47, including sequential Bates number ranges, document descriptions, document dates, page counts, and custodian or source information:

Total Documents Produced: PPC-IDR47-000001 through PPC-IDR47-001893

Total Page Count: 1,893 pages

All documents have been produced in the format agreed upon at the outset of the examination. Hard-copy originals of certain documents are available for inspection upon reasonable request.

Section 7: Privilege Withholdings

Notwithstanding the comprehensive production described above, PPC has withheld certain documents responsive to IDR No. 47 on the basis of the attorney-client privilege and/or the work-product doctrine. These documents are protected from disclosure under applicable law, including but not limited to Fed. R. Evid. 501, the common law attorney-client privilege, and the protections afforded to attorney work product under Fed. R. Civ. P. 26(b)(3) and its analogues in the tax examination context.

The withheld documents are described on the privilege log previously provided to the examination team and supplemented herewith. PPC has prepared supplemental privilege log entries describing each document withheld in connection with this response, including the date, author, recipients, general subject matter, and applicable privilege basis. The supplemental privilege log entries are enclosed with this response.

PPC's privilege withholdings are consistent with the privilege protocol established at the outset of this examination and agreed upon between the examination team and counsel during the initial conference held on June 14, 2022. PPC has applied the privilege protocol consistently throughout the examination and has made every effort to produce all non-privileged materials responsive to each IDR.

The withheld documents fall into the following categories:

(i) Communications between PBI personnel (including Managing Director Aidan Naughton and members of PBI's executive team) and attorneys at Calderwood & Harkness LLP that contain or reflect legal advice regarding PPC's and PBI's transfer pricing positions, including advice regarding the application of IRC § 482, the arm's-length standard, and the appropriate characterization of PBI's DEMPE functions. These communications were made in confidence for the purpose of obtaining legal advice and are protected by the attorney-client privilege.

(ii) Documents, analyses, and reports prepared by Whitmore Valuation Group LLC at the direction of Calderwood & Harkness LLP in connection with this examination. Whitmore Valuation Group LLC was retained by Calderwood & Harkness LLP as a non-testifying expert consultant under a Kovel arrangement, as documented in the Kovel retention letter bearing reference number 1018-00009-KV, executed on June 20, 2022. All work product prepared by Whitmore Valuation Group LLC in connection with this engagement was prepared at the direction of counsel for the purpose of assisting counsel in rendering legal advice to PPC and is protected as attorney work product under the work-product doctrine.

PPC does not waive, and expressly preserves, all applicable privileges and protections with respect to the withheld documents.

Section 8: Reservation of Rights

PPC expressly reserves all rights, defenses, objections, and positions available to it under applicable law, including but not limited to the following:

(a) PPC reserves the right to supplement, amend, or correct this response and any prior IDR response at any time, including but not limited to the production of additional documents, the correction of any inadvertent errors, and the provision of additional information or clarification as may become necessary or appropriate.

(b) The production of documents in connection with this response, or in connection with any prior IDR response during this examination, does not constitute a waiver of any objection, privilege, right, defense, or position available to PPC, whether at the administrative level, before the IRS Independent Office of Appeals, or in any judicial proceeding.

(c) PPC continues to maintain that its transfer pricing methodologies, as applied during the tax years 2017 through 2020, comply fully with the requirements of Internal Revenue Code § 482 and the applicable Treasury Regulations promulgated thereunder, including without limitation Treas. Reg. §§ 1.482-4 and 1.482-7. Specifically, PPC maintains that the following intercompany transactions reflect arm's-length pricing:

(i) The cost-sharing ratios applied under the CSA between PPC and PBI, which allocated intangible development costs based on each party's reasonably anticipated benefits, with PBI's share increasing from 38.2% in 2017 to 42.7% in 2020;

(ii) The 4.5% legacy IP royalty rate applicable to PBI's net sales attributable to pre-CSA intangible property, as established in the legacy IP license agreement; and

(iii) The platform contribution transaction ("PCT") payment of $312 million made by PBI in connection with PBI's entry into the CSA in 2012, which was determined based on a discounted cash flow analysis of the reasonably anticipated benefits attributable to the pre-existing platform contributions made available to PBI.

(d) PPC further maintains that its contemporaneous transfer pricing documentation, originally prepared by Crestfield & Associates LLP under the supervision of Susan Lam, Transfer Pricing Partner, satisfies the requirements of IRC § 6662(e)(3)(B) and the regulations thereunder, and that PPC is not subject to any transfer pricing penalty under IRC § 6662(e) or (h) with respect to the tax years under examination.

Nothing in this response or in any prior IDR response shall be construed as a concession or admission by PPC with respect to any issue in this examination, and PPC expressly preserves all rights to contest any proposed adjustment at the administrative or judicial level.

Section 9: Cooperation and Closing

PPC has been committed to full and transparent cooperation with the IRS examination team throughout the course of this examination. This response to IDR No. 47 represents PPC's forty-seventh IDR response and the final IDR response in this examination. Over the course of the past sixteen months, PPC has engaged in a comprehensive and good-faith effort to provide all information and documentation responsive to the examination team's requests, and PPC believes that the totality of its IDR responses provides the examination team with a thorough and complete record of the relevant facts and transactions.

We are available to discuss any questions the examination team may have regarding this response or the documents produced herewith. Should the examination team require further clarification regarding any aspect of the responsive materials, we are prepared to arrange a conference call or in-person meeting at a mutually convenient time.

We note that a copy of this response is being provided to Supervisory Revenue Agent Gerald Meskill, Team Manager, in accordance with the examination team's standard protocols.

Finally, we respectfully request that Revenue Agent Dunleavy acknowledge receipt of this response and the enclosed documents by signing and returning the enclosed copy of this letter or by confirming receipt via electronic communication to the undersigned.

We thank you for your professionalism and courtesy throughout this examination and look forward to working toward a resolution of the matters under review.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Leonard Cross Partner, Tax Department 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 564-8217

Email: lcross@calderwoodharkness.com

On behalf of Penterra Pharmaceuticals Corp.

cc: (via electronic mail)

Gerald Meskill, Supervisory Revenue Agent / Team Manager, IRS Large Business & International Division

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, Associate, Calderwood & Harkness LLP

Leila Nazari, Associate, Calderwood & Harkness LLP

Enclosures:

1. Documents bearing Bates Nos. PPC-IDR47-000001 through PPC-IDR47-001893 (as itemized in Section 6 above)

2. Supplemental Privilege Log entries (3 entries)

Bates Number Range	Document Description	Document Date(s)	Pages	Custodian / Source
PPC-IDR47-000001 – 000347	PBI Employee Compensation Summaries by Functional Area (2017–2020)	2017–2020	347	PBI Human Resources, Dublin
PPC-IDR47-000348 – 000512	Key Personnel Compensation Detail — Named Senior Decision-Makers (2017–2020)	2017–2020	165	PBI Human Resources, Dublin
PPC-IDR47-000513 – 001284	PBI Employee Travel Records — All Destinations (2017–2020)	2017–2020	772	PBI Finance / Concur System, Dublin
PPC-IDR47-001285 – 001631	PPC U.S. Employee Travel Records — Travel to Dublin (2017–2020)	2017–2020	347	PPC Finance / Harborview Solutions System, Princeton Junction
PPC-IDR47-001632 – 001798	Supplemental Intercompany Service Invoices and Allocation Schedules (2019–2020)	2019–2020	167	PPC Global Tax / PBI Finance
PPC-IDR47-001799 – 001893	Updated PBI Headcount Reconciliation (2012–2020)	2012–2020	95	PBI Human Resources, Dublin

CONFIDENTIAL — TAX EXAMINATION MATERIALS
CALDERWOOD & HARKNESS LLP Attorneys at Law
1735 Market Street, Suite 3100 Philadelphia, PA 19103 Tel: (215) 564-8200 | Fax: (215) 564-8201
600 Lexington Avenue New York, NY 10022 Tel: (212) 709-5500 | Fax: (212) 709-5501
September 29, 2023
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND ELECTRONIC DELIVERY (IRS SECURE MESSAGING)
Revenue Agent Patricia Dunleavy Large Business & International Division Internal Revenue Service Re: Examination of Penterra Pharmaceuticals Corp.
Employer Identification Number: 22-3741856 Tax Years Under Examination: 2017, 2018, 2019, 2020 Exam Team ID: LB&I-NE-TP-2022-00641
Re: Response to Information Document Request No. 47 (Final IDR)
Dear Revenue Agent Dunleavy:
This firm serves as authorized representative and counsel of record for Penterra Pharmaceuticals Corp. ("PPC" or the "Company") in the above-referenced examination. I write in my capacity as Responsible Partner, Tax Department, Calderwood & Harkness LLP, on behalf of PPC and pursuant to the IRS Form 2848, Power of Attorney and Declaration of Representative, filed on June 8, 2022, which authorizes Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari, all of Calderwood & Harkness LLP, to represent PPC before the Internal Revenue Service in connection with this examination.
We acknowledge receipt of Information Document Request No. 47, dated September 8, 2023, which we understand to be the final Information Document Request issued in this examination. The examination was formally opened on May 16, 2022, and the IRS examination team has issued a total of forty-seven (47) IDRs between June 2022 and September 2023. PPC has responded to each IDR in the order received and within the agreed-upon response timelines established pursuant to the IDR enforcement process. This response produces supplemental documentation as requested in IDR No. 47, including additional employee compensation data and travel records for Penterra Biopharma International DAC ("PBI"), PPC's Irish subsidiary, as well as updated headcount reconciliation data, supplemental intercompany documentation, and related materials, all as further described herein.
PPC has undertaken a thorough and diligent search of its records, and of the records of PBI maintained in Dublin, Ireland, to compile the responsive documents enclosed with this letter. We believe this response is complete and responsive to each sub-item set forth in IDR No. 47.
Section 1: Summary of IDR No. 47 Requests
For ease of reference and to facilitate the examination team's review, we restate below each sub-item contained in IDR No. 47, as issued on September 8, 2023:
(a) Supplemental employee compensation data for PBI personnel based in Dublin, Ireland, for each of the tax years 2017, 2018, 2019, and 2020, including breakdowns of base salary, bonus compensation, and benefits for key decision-making personnel. This request supplements prior compensation data produced in response to IDR Nos. 8 and 22.
(b) Travel records for PBI employees traveling between Dublin, Ireland, and PPC's corporate headquarters in Princeton Junction, New Jersey, as well as travel to other locations worldwide, for the period covering tax years 2017 through 2020, inclusive.
(c) Travel records for PPC U.S.-based employees traveling to PBI's offices at Sandyford Business Park, Dublin, Ireland, during tax years 2017 through 2020, inclusive.
(d) Any additional intercompany service agreements, management fee agreements, or related documentation not previously produced in response to prior IDRs during this examination.
(e) An updated headcount reconciliation for PBI, reconciling the growth in PBI's employee base from fifty-two (52) employees at the time of PBI's incorporation in 2012 to one hundred eighty-five (185) employees as of year-end 2020, broken down by function and by year.
We address each of these sub-items in turn below and describe the responsive documents being produced herewith.
Section 2: Responsive Documents — Employee Compensation Data
2.1 PBI Employee Compensation Summaries (2017–2020)
In response to sub-item (a) of IDR No. 47, PPC produces herewith anonymized compensation summaries for all PBI personnel based in Dublin, Ireland, for each of the tax years 2017, 2018, 2019, and 2020. These summaries have been organized by functional area to facilitate the examination team's review and to provide a clear picture of PBI's operational structure and the distribution of human capital across its core business functions. The functional areas reflected in the compensation summaries are as follows:
(i) Regulatory Affairs; (ii) Medical Affairs; (iii) Commercial Strategy; (iv) Supply Chain and Distribution Management; (v) Finance and Administration; and (vi) Executive Management.
Each compensation summary includes, for each employee, the following data points: (1) anonymized employee identifier; (2) functional department; (3) job title and grade level; (4) annual base salary; (5) annual bonus compensation (both target and actual paid); (6) benefits and allowances, including pension contributions, health insurance, and housing allowances where applicable; and (7) total annual compensation. The summaries also include aggregated compensation data by department, allowing for comparison of total labor costs across functional areas for each year of the examination period.
The compensation data encompasses all one hundred eighty-five (185) employees on PBI's payroll as of December 31, 2020, and includes historical compensation data for all employees on PBI's payroll at any point during the examination period, including employees who departed PBI during 2017–2020. Named compensation detail is provided for PBI's Managing Director, Aidan Naughton, and other senior personnel, as described further in Section 2.2 below, consistent with the specific requests made by the examination team during the conference call of September 5, 2023.
All compensation reflected in these summaries was paid in euros through PBI's operating accounts maintained at Glenmore Bank Ireland plc, PBI's primary banking institution in Ireland. Currency conversions to U.S. dollars have been provided at the applicable annual average exchange rate for each tax year, as reported by the European Central Bank, to facilitate comparison with PPC's consolidated financial statements.
The compensation data produced herein demonstrates that PBI personnel were compensated at market rates consistent with their decision-making authority and the scope of their functions performed in Dublin. Compensation levels for PBI's key decision-makers are commensurate with the levels observed at comparable pharmaceutical companies operating in the Dublin market, as reflected in the benchmarking studies conducted by Cascade Strategy Partners and previously produced in connection with IDR No. 22 (Bates Nos. PPC-IDR22-003417 through PPC-IDR22-003489). The fact that PBI employed senior professionals at competitive market compensation rates, across multiple functional areas, is consistent with and corroborative of PBI's economic substance and its role as the entrepreneurial principal for non-Americas commercialization activities.
The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-000001 through PPC-IDR47-000347.
2.2 Key Personnel Compensation Detail
In further response to sub-item (a), and as specifically requested during the conference call of September 5, 2023, between Revenue Agent Dunleavy, Supervisory Revenue Agent Meskill, and undersigned counsel, PPC produces herewith detailed compensation data for PBI's senior decision-making personnel, identified by name and title. These individuals occupy leadership positions at PBI and are responsible for directing PBI's core business operations in Dublin and across PBI's non-Americas markets. The key personnel for whom detailed compensation data is produced are as follows:
• Aidan Naughton, Managing Director, PBI (2014–present);
• Dr. Claire Brennan, Vice President, Regulatory Affairs (2013–present);
• Seamus Gallagher, Vice President, Commercial Strategy (2015–present);
• Niamh Kavanagh, Head of Supply Chain and Distribution Management (2016–present); and
• Dr. Rajesh Muthukumar, Head of Medical Affairs (2015–present).
The compensation data for each of these individuals includes the same data points described in Section 2.1 above, as well as details regarding equity-based compensation (PPC restricted stock units granted through PPC's global equity incentive plan), long-term incentive plan participation, and severance or change-of-control provisions, where applicable.
These data are produced to support PPC's position that PBI's senior personnel exercised independent judgment and performed substantive management and decision-making functions in Dublin with respect to the non-Americas commercialization of PPC's key pharmaceutical products. Specifically, the compensation data is probative of the following points relevant to PBI's DEMPE (Development, Enhancement, Maintenance, Protection, and Exploitation) functions:
• Pricing Decisions: Mr. Gallagher and his Commercial Strategy team were responsible for setting ex-manufacturer prices and negotiating reimbursement and formulary access across sixty-eight (68) country markets in Europe, Asia-Pacific, the Middle East, and Africa. These pricing decisions were made in Dublin and in the relevant local markets, reflecting PBI's assessment of competitive dynamics, local regulatory requirements, and health technology assessment frameworks in each jurisdiction.
• Regulatory Submission Strategy: Dr. Brennan and the Regulatory Affairs team directed PBI's regulatory submission strategy, overseeing a cumulative regulatory spend of approximately €47.2 million during 2017–2020. This expenditure encompassed submissions to the European Medicines Agency ("EMA"), national competent authorities in the EU member states, the UK Medicines and Healthcare products Regulatory Agency ("MHRA"), and regulatory authorities in Asia-Pacific, Middle East, and African markets. The Regulatory Affairs team in Dublin had authority to approve and execute these submissions without direction from PPC's U.S. operations.
• Distribution Partner Selection and Management: Ms. Kavanagh and the Supply Chain and Distribution Management team selected and managed third-party distributors and logistics partners across PBI's non-Americas territories. Distribution agreements were negotiated and executed in Dublin, with Ms. Kavanagh and her team exercising independent authority over partner selection, contract terms, and performance management.
• Medical Affairs Activities: Dr. Muthukumar directed PBI's medical affairs programs in non-Americas territories, including key opinion leader engagement, investigator-sponsored research programs, and medical information services for Veritaxol, Imvara, and Cerulon.
The compensation levels of these individuals, and the functional responsibilities to which they correspond, are consistent with the functional analysis previously produced in PPC's response to IDR No. 8 (Bates Nos. PPC-IDR08-000112 through PPC-IDR08-000298) and with PPC's contemporaneous transfer pricing documentation prepared by Crestfield & Associates LLP.
The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-000348 through PPC-IDR47-000512.
Section 3: Responsive Documents — Travel Records
3.1 PBI Employee Travel Records (2017–2020)
In response to sub-item (b) of IDR No. 47, PPC produces herewith travel records for PBI employees based in Dublin who traveled during the tax years 2017 through 2020. These records have been compiled from PBI's Concur Travel & Expense system and supplemented with data from PBI's travel management company, Aldermere Services Inc.. The travel records include the following information for each trip: (1) employee name and title; (2) dates of travel; (3) destination city and country; (4) stated business purpose; (5) associated project or business unit code; and (6) total travel expenditure.
The travel records demonstrate the following patterns, which are material to the issues under examination:
Travel to Non-Americas Markets. The overwhelming majority of PBI employee travel during 2017–2020 was directed toward non-Americas markets where PBI performs commercialization, regulatory, and medical affairs functions. PBI employees traveled extensively throughout Europe (including the United Kingdom, Germany, France, Spain, Italy, and the Nordics), as well as to Japan, South Korea, Australia, the United Arab Emirates, Saudi Arabia, South Africa, and other markets within PBI's geographic scope. This travel was undertaken for purposes including regulatory authority meetings, distributor conferences, pricing and reimbursement negotiations, key opinion leader engagement, commercial launch activities, and medical congress participation.
The volume and nature of this travel are consistent with PBI's role as the principal for non-Americas commercialization of Veritaxol, Imvara, and Cerulon, and they demonstrate that PBI's Dublin-based personnel performed substantive business functions in the markets they served.
Travel to PPC Headquarters in Princeton Junction, NJ. The travel records also reflect a comparatively limited number of trips by certain PBI employees to PPC's corporate headquarters at 2200 Independence Boulevard, Princeton Junction, NJ 08550. These trips were undertaken for the following purposes:
(i) Coordination meetings related to global product development and launch sequencing; (ii) Administrative meetings related to the cost-sharing arrangement ("CSA") between PPC and PBI, including annual true-up discussions and CSA steering committee sessions; (iii) Research and development project review meetings, at which PBI personnel provided input on development program priorities as a cost-sharing participant under the CSA; and (iv) PPC Board of Directors and global management team meetings at which PBI's Managing Director, Mr. Naughton, attended in his capacity as a PBI representative.
Importantly, the travel records reflect that PBI employees traveling to Princeton Junction did so for coordination and information-sharing purposes, and that these visits did not involve the direction or control of PBI's commercial operations by PPC's U.S.-based management. PBI's commercial decisions continued to be made in Dublin and in the relevant non-Americas markets, consistent with PBI's role and functions.
The travel records for PBI employees bear the following Bates numbers: PPC-IDR47-000513 through PPC-IDR47-001284.
3.2 PPC U.S. Employee Travel to Dublin (2017–2020)
In response to sub-item (c) of IDR No. 47, PPC produces herewith travel records for PPC U.S.-based employees who traveled to PBI's offices located at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland, during tax years 2017 through 2020. These records have been compiled from PPC's Harborview Solutions Travel & Expense system and verified against PPC's corporate travel booking records.
The travel records have been organized by calendar year and by PPC department. The PPC departments from which employees traveled to Dublin during the examination period include:
• Research & Development: R&D personnel traveled to Dublin primarily for CSA-related meetings, including R&D project reviews and discussions regarding PBI's cost-sharing contributions and intangible development activity participation. These visits typically coincided with quarterly CSA steering committee meetings.
• Corporate Tax: Members of PPC's global tax department, under the supervision of Marcus Whitfield, VP, Global Tax, traveled to Dublin for transfer pricing documentation reviews, intercompany transaction reconciliations, and discussions with PBI's finance team regarding compliance with applicable tax requirements in Ireland and the United States.
• Finance: PPC finance personnel traveled to Dublin for purposes related to consolidated financial reporting, internal audit procedures, and Sarbanes-Oxley compliance testing of PBI's internal controls over financial reporting.
The records reflect that PPC U.S. employee travel to Dublin was limited in both frequency and scope. Over the four-year examination period, a total of approximately seventy-three (73) individual trips were recorded, with the average trip duration being approximately two to three business days. The stated business purposes for these trips are consistently described in the records as coordination, review, and compliance-related activities — not as direction or management of PBI's commercial operations.
These records support PPC's position that the DEMPE functions for non-Americas territories were controlled and performed by PBI in Dublin. PPC U.S. personnel did not travel to Dublin to direct, manage, or otherwise control PBI's pricing decisions, regulatory strategy, distribution partner relationships, or other commercial operations. The limited travel that occurred was consistent with the normal level of coordination and oversight expected within a multinational corporate group and does not indicate that PBI's decision-making authority was, in substance, exercised from the United States.
The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-001285 through PPC-IDR47-001631.
Section 4: Responsive Documents — Supplemental Intercompany Service and Management Fee Documentation
In response to sub-item (d) of IDR No. 47, PPC has conducted a comprehensive review of its records to determine whether any intercompany service agreements, management fee agreements, or related documentation have not been previously produced in this examination.
PPC confirms that all material intercompany service and management fee agreements between PPC and its affiliates, including PBI, have been previously produced in response to prior IDRs. Specifically, the following agreements and related documentation were previously produced and remain the operative agreements for the examination period:
• Qualified Cost Sharing Arrangement ("CSA"): The cost-sharing arrangement between PPC and PBI, dated March 15, 2012, as amended, was produced in its entirety in PPC's response to IDR No. 2 (Bates Nos. PPC-IDR02-000001 through PPC-IDR02-000187). The CSA governs the sharing of intangible development costs between PPC and PBI, with PBI's cost-sharing percentage based on its reasonably anticipated benefits from the intangible property developed under the arrangement.
• Legacy IP License Agreement: The license agreement pursuant to which PBI obtained rights to pre-CSA intangible property, executed contemporaneously with the CSA on March 15, 2012, was produced in PPC's response to IDR No. 3 (Bates Nos. PPC-IDR03-000001 through PPC-IDR03-000124). This agreement provides for a royalty rate of 4.5% of net sales attributable to the licensed pre-CSA intangibles.
• PMI Contract Manufacturing Agreement: The contract manufacturing agreement between PPC Manufacturing Ireland Ltd. ("PMI") and PBI, pursuant to which PMI manufactures finished pharmaceutical products for PBI's non-Americas markets at a cost-plus-eight-percent (cost + 8%) markup, was produced in PPC's response to IDR No. 10 (Bates Nos. PPC-IDR10-000001 through PPC-IDR10-000093).
Although PPC confirms that no additional material agreements exist beyond those already produced, PPC does produce herewith the following supplemental documentation that was not previously included in prior IDR responses:
• Updated intercompany service invoices for shared corporate services (including global IT infrastructure, software licensing, corporate insurance allocations, and treasury management services) for the fiscal years 2019 and 2020. These invoices were prepared on a quarterly basis and reflect charges allocated to PBI based on agreed-upon allocation keys, primarily headcount and revenue-based allocation methodologies.
• Supporting allocation schedules for the 2019 and 2020 shared corporate service charges, which detail the allocation methodology, the allocation keys applied, the total shared cost pool for each service category, and PBI's allocated share.
PPC notes that the intercompany service charges reflected in these invoices and allocation schedules are consistent with the methodology described in PPC's transfer pricing documentation and comply with the arm's-length standard under IRC § 482 and Treas. Reg. § 1.482-9.
The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-001632 through PPC-IDR47-001798.
Section 5: Responsive Documents — Updated PBI Headcount Reconciliation
In response to sub-item (e) of IDR No. 47, PPC produces herewith a year-by-year headcount reconciliation for PBI, covering the period from PBI's date of incorporation on March 15, 2012, through year-end 2020. The reconciliation reflects PBI's total employee headcount at each year-end, broken down by functional department, and provides a comprehensive view of PBI's operational growth over the relevant period.
The headcount reconciliation is organized by the following functional departments:
• Regulatory Affairs
• Medical Affairs
• Commercial Strategy / Marketing
• Supply Chain / Distribution Management
• Finance / Administration
• Executive / Management
As reflected in the reconciliation, PBI's employee base grew from fifty-two (52) employees at the time of its incorporation in 2012 to one hundred eighty-five (185) employees as of December 31, 2020. This growth was steady and deliberate, reflecting PBI's expanding operational capacity in connection with the commercialization of PPC's key pharmaceutical products — Veritaxol, Imvara, and Cerulon — across non-Americas markets. The headcount growth was concentrated in the functional areas most directly tied to PBI's commercialization activities, particularly regulatory affairs, commercial strategy, and supply chain management.
The headcount reconciliation further demonstrates the following trends during the 2017–2020 examination period:
• PBI's headcount grew from approximately one hundred forty-one (141) employees at year-end 2016 to one hundred eighty-five (185) employees at year-end 2020, an increase of approximately thirty-one percent (31%) over the four-year examination period.
• The most significant headcount growth occurred in the Commercial Strategy / Marketing function, reflecting PBI's expanding geographic footprint and the sequential launch of Imvara and Cerulon in additional non-Americas markets during 2017–2019.
• The Regulatory Affairs function also experienced meaningful growth, driven by the increasing volume of regulatory submissions required to support market authorizations across sixty-eight (68) country markets, including type II variation applications, periodic safety update reports, and post-marketing commitments.
• The Supply Chain / Distribution Management function grew in parallel with PBI's expanding distribution network, as PBI onboarded new third-party distribution partners in emerging markets during the examination period.
PPC notes that PBI's headcount growth during the examination period corresponded to PBI's increasing cost-sharing percentages under the CSA. PBI's cost-sharing percentage rose from 38.2% in 2017 to 42.7% in 2020, reflecting PBI's growing share of the reasonably anticipated benefits from the intangible property developed under the CSA. This increase was driven by PBI's growing non-Americas revenue, which in turn was supported by the expanded operational capacity reflected in the headcount data.
The headcount reconciliation is also cross-referenced to the minutes of forty-two (42) PBI board meetings held in Dublin during the 2017–2020 examination period. Board meeting minutes reflecting discussions and approvals of PBI staffing plans, organizational restructuring, and hiring budgets were previously produced in response to IDR No. 14 (Bates Nos. PPC-IDR14-000201 through PPC-IDR14-000487). The headcount reconciliation produced herewith is consistent with the staffing plans discussed and approved at those board meetings, further demonstrating that PBI's growth was the product of deliberate strategic planning undertaken by PBI's management and board in Dublin.
The documents responsive to this sub-item bear the following Bates numbers: PPC-IDR47-001799 through PPC-IDR47-001893.
Section 6: Document Production Log
Set forth below is an itemized log of all documents produced in connection with this response to IDR No. 47, including sequential Bates number ranges, document descriptions, document dates, page counts, and custodian or source information:
Total Documents Produced: PPC-IDR47-000001 through PPC-IDR47-001893
Total Page Count: 1,893 pages
All documents have been produced in the format agreed upon at the outset of the examination. Hard-copy originals of certain documents are available for inspection upon reasonable request.
Section 7: Privilege Withholdings
Notwithstanding the comprehensive production described above, PPC has withheld certain documents responsive to IDR No. 47 on the basis of the attorney-client privilege and/or the work-product doctrine. These documents are protected from disclosure under applicable law, including but not limited to Fed. R. Evid. 501, the common law attorney-client privilege, and the protections afforded to attorney work product under Fed. R. Civ. P. 26(b)(3) and its analogues in the tax examination context.
The withheld documents are described on the privilege log previously provided to the examination team and supplemented herewith. PPC has prepared supplemental privilege log entries describing each document withheld in connection with this response, including the date, author, recipients, general subject matter, and applicable privilege basis. The supplemental privilege log entries are enclosed with this response.
PPC's privilege withholdings are consistent with the privilege protocol established at the outset of this examination and agreed upon between the examination team and counsel during the initial conference held on June 14, 2022. PPC has applied the privilege protocol consistently throughout the examination and has made every effort to produce all non-privileged materials responsive to each IDR.
The withheld documents fall into the following categories:
(i) Communications between PBI personnel (including Managing Director Aidan Naughton and members of PBI's executive team) and attorneys at Calderwood & Harkness LLP that contain or reflect legal advice regarding PPC's and PBI's transfer pricing positions, including advice regarding the application of IRC § 482, the arm's-length standard, and the appropriate characterization of PBI's DEMPE functions. These communications were made in confidence for the purpose of obtaining legal advice and are protected by the attorney-client privilege.
(ii) Documents, analyses, and reports prepared by Whitmore Valuation Group LLC at the direction of Calderwood & Harkness LLP in connection with this examination. Whitmore Valuation Group LLC was retained by Calderwood & Harkness LLP as a non-testifying expert consultant under a Kovel arrangement, as documented in the Kovel retention letter bearing reference number 1018-00009-KV, executed on June 20, 2022. All work product prepared by Whitmore Valuation Group LLC in connection with this engagement was prepared at the direction of counsel for the purpose of assisting counsel in rendering legal advice to PPC and is protected as attorney work product under the work-product doctrine.
PPC does not waive, and expressly preserves, all applicable privileges and protections with respect to the withheld documents.
Section 8: Reservation of Rights
PPC expressly reserves all rights, defenses, objections, and positions available to it under applicable law, including but not limited to the following:
(a) PPC reserves the right to supplement, amend, or correct this response and any prior IDR response at any time, including but not limited to the production of additional documents, the correction of any inadvertent errors, and the provision of additional information or clarification as may become necessary or appropriate.
(b) The production of documents in connection with this response, or in connection with any prior IDR response during this examination, does not constitute a waiver of any objection, privilege, right, defense, or position available to PPC, whether at the administrative level, before the IRS Independent Office of Appeals, or in any judicial proceeding.
(c) PPC continues to maintain that its transfer pricing methodologies, as applied during the tax years 2017 through 2020, comply fully with the requirements of Internal Revenue Code § 482 and the applicable Treasury Regulations promulgated thereunder, including without limitation Treas. Reg. §§ 1.482-4 and 1.482-7. Specifically, PPC maintains that the following intercompany transactions reflect arm's-length pricing:
(i) The cost-sharing ratios applied under the CSA between PPC and PBI, which allocated intangible development costs based on each party's reasonably anticipated benefits, with PBI's share increasing from 38.2% in 2017 to 42.7% in 2020;
(ii) The 4.5% legacy IP royalty rate applicable to PBI's net sales attributable to pre-CSA intangible property, as established in the legacy IP license agreement; and
(iii) The platform contribution transaction ("PCT") payment of $312 million made by PBI in connection with PBI's entry into the CSA in 2012, which was determined based on a discounted cash flow analysis of the reasonably anticipated benefits attributable to the pre-existing platform contributions made available to PBI.
(d) PPC further maintains that its contemporaneous transfer pricing documentation, originally prepared by Crestfield & Associates LLP under the supervision of Susan Lam, Transfer Pricing Partner, satisfies the requirements of IRC § 6662(e)(3)(B) and the regulations thereunder, and that PPC is not subject to any transfer pricing penalty under IRC § 6662(e) or (h) with respect to the tax years under examination.
Nothing in this response or in any prior IDR response shall be construed as a concession or admission by PPC with respect to any issue in this examination, and PPC expressly preserves all rights to contest any proposed adjustment at the administrative or judicial level.
Section 9: Cooperation and Closing
PPC has been committed to full and transparent cooperation with the IRS examination team throughout the course of this examination. This response to IDR No. 47 represents PPC's forty-seventh IDR response and the final IDR response in this examination. Over the course of the past sixteen months, PPC has engaged in a comprehensive and good-faith effort to provide all information and documentation responsive to the examination team's requests, and PPC believes that the totality of its IDR responses provides the examination team with a thorough and complete record of the relevant facts and transactions.
We are available to discuss any questions the examination team may have regarding this response or the documents produced herewith. Should the examination team require further clarification regarding any aspect of the responsive materials, we are prepared to arrange a conference call or in-person meeting at a mutually convenient time.
We note that a copy of this response is being provided to Supervisory Revenue Agent Gerald Meskill, Team Manager, in accordance with the examination team's standard protocols.
Finally, we respectfully request that Revenue Agent Dunleavy acknowledge receipt of this response and the enclosed documents by signing and returning the enclosed copy of this letter or by confirming receipt via electronic communication to the undersigned.
We thank you for your professionalism and courtesy throughout this examination and look forward to working toward a resolution of the matters under review.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Leonard Cross Partner, Tax Department 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 564-8217
Email: lcross@calderwoodharkness.com
On behalf of Penterra Pharmaceuticals Corp.
cc: (via electronic mail)
Gerald Meskill, Supervisory Revenue Agent / Team Manager, IRS Large Business & International Division
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, Associate, Calderwood & Harkness LLP
Leila Nazari, Associate, Calderwood & Harkness LLP
Enclosures:
1. Documents bearing Bates Nos. PPC-IDR47-000001 through PPC-IDR47-001893 (as itemized in Section 6 above)
2. Supplemental Privilege Log entries (3 entries)
Bates Number Range | Document Description | Document Date(s) | Pages | Custodian / Source
PPC-IDR47-000001 – 000347 | PBI Employee Compensation Summaries by Functional Area (2017–2020) | 2017–2020 | 347 | PBI Human Resources, Dublin
PPC-IDR47-000348 – 000512 | Key Personnel Compensation Detail — Named Senior Decision-Makers (2017–2020) | 2017–2020 | 165 | PBI Human Resources, Dublin
PPC-IDR47-000513 – 001284 | PBI Employee Travel Records — All Destinations (2017–2020) | 2017–2020 | 772 | PBI Finance / Concur System, Dublin
PPC-IDR47-001285 – 001631 | PPC U.S. Employee Travel Records — Travel to Dublin (2017–2020) | 2017–2020 | 347 | PPC Finance / Harborview Solutions System, Princeton Junction
PPC-IDR47-001632 – 001798 | Supplemental Intercompany Service Invoices and Allocation Schedules (2019–2020) | 2019–2020 | 167 | PPC Global Tax / PBI Finance
PPC-IDR47-001799 – 001893 | Updated PBI Headcount Reconciliation (2012–2020) | 2012–2020 | 95 | PBI Human Resources, Dublin

CONFIDENTIAL — TAX EXAMINATION MATERIALS

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