1032-00003 · Client 1032 · Structuring & Analysis/Tax

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

TO: Vivienne St. Claire, Responsible Partner, Capital Markets, Calderwood & Harkness LLP Robert Adeyemi, Billing Partner, Capital Markets, Calderwood & Harkness LLP Claire Dempsey, Lead Associate, Capital Markets, Calderwood & Harkness LLP Audrey Zhou, Working Associate, Capital Markets, Calderwood & Harkness LLP

FROM: Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP

DATE: February 5, 2026

RE: Halcyon Semiconductor Aktiengesellschaft — Passive Foreign Investment Company (PFIC) Analysis Under IRC §§ 1291–1298 (FY2023–FY2025)

MATTER NO.: 1032-00003

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I. Executive Summary

The purpose of this memorandum is to analyze whether Halcyon Semiconductor Aktiengesellschaft ("Halcyon," "HSAG," or the "Company"), a German Aktiengesellschaft incorporated and registered in Munich, Bavaria (Commercial Register No. HRB 217458, Amtsgericht München), would be classified as a Passive Foreign Investment Company ("PFIC") under Sections 1291 through 1298 of the Internal Revenue Code of 1986, as amended (the "Code"), for the taxable years ended December 31, 2023, December 31, 2024, and December 31, 2025 (respectively, "FY2023," "FY2024," and "FY2025").

This analysis is prepared in connection with the Company's planned initial public offering in the United States (the "US IPO" or the "Offering"). Halcyon is pursuing the Offering via a Level III American Depositary Receipt ("ADR") program, with targeted gross proceeds of approximately $900,000,000. Registration on Form F-1 under the Securities Act of 1933, as amended (the "Securities Act"), is contemplated. American Depositary Shares ("ADSs") will represent ordinary shares (Stammaktien) of the Company at a ratio of one (1) ADS to two (2) ordinary shares, with listing targeted on the Nasdaq Global Select Market under the ticker symbol "HCYN." The PFIC determination is critical for United States holders of ADSs, as PFIC classification would impose materially adverse US federal income tax consequences on such holders, including the elimination of preferential capital gains rates and qualified dividend treatment, and the imposition of an interest charge on deferred tax amounts.

Conclusion. Based on our analysis of both the income test under Section 1297(a)(1) of the Code and the asset test under Section 1297(a)(2) of the Code for each of FY2023, FY2024, and FY2025, we conclude that Halcyon is not a PFIC for any of these taxable years. Specifically:

• Less than 25% of Halcyon's gross income for each of the three taxable years under review constitutes "passive income" as defined in Section 1297(b) of the Code. In fact, passive income represents approximately 0.3% to 0.5% of the Company's total gross income in each year, which falls far below the 75% statutory threshold.

• Less than 50% of Halcyon's assets, measured by the average fair market value on a quarterly basis, produce or are held for the production of passive income. Under conservative assumptions, passive assets represent approximately 8.7% to 10.5% of total assets in each year, well below the 50% statutory threshold.

• The active business exception applicable to the Company's semiconductor manufacturing and sales operations is clearly satisfied across all three taxable years.

Caveat. PFIC status is determined annually on a year-by-year basis. Accordingly, no assurance can be given regarding the Company's PFIC status for future taxable years, including the taxable year in which the Offering closes. The prospectus disclosure in the Form F-1 registration statement should include appropriate risk factor language addressing the possibility that PFIC status could apply in future years and describing the consequences thereof and the protective elections available to US holders.

II. Background and Scope

A. Engagement Context

Calderwood & Harkness LLP ("C&H" or the "Firm") serves as US securities counsel to Halcyon in connection with the planned ADR IPO on the Nasdaq Global Select Market. The engagement is governed by the Engagement Letter dated November 20, 2025, between C&H and Halcyon, as supplemented by Engagement Letter Supplement No. 1 dated January 15, 2026.

Pursuant to the Engagement Letter Supplement dated January 15, 2026, Leonard Cross, partner in the Firm's Tax Practice Group, was engaged as tax specialist partner to provide the following tax-related work streams in connection with the Offering:

(i) PFIC analysis for FY2023 through FY2025 (the subject of this memorandum);

(ii) US federal income tax opinion for inclusion in the prospectus section entitled "Material United States Federal Income Tax Considerations for US Holders";

(iii) Analysis of the United States–Germany Income Tax Treaty (the "Treaty") and its application to US holders of ADSs, including withholding tax rates on dividends and the availability of Treaty benefits; and

(iv) Qualified Intermediary ("QI") considerations relating to the depositary bank and the ADR facility structure.

This memorandum addresses exclusively the PFIC analysis component identified in clause (i) above. The US federal income tax opinion, Treaty analysis, and QI considerations will be addressed in separate memoranda and work product deliverables.

B. Description of Halcyon

Halcyon Semiconductor Aktiengesellschaft is a leading European semiconductor company that designs and manufactures advanced power semiconductor devices, including silicon carbide ("SiC") and gallium nitride ("GaN") chips, for end markets spanning automotive, industrial automation, and renewable energy applications. The Company's product portfolio includes power modules, discrete devices, and integrated circuit solutions that are utilized in electric vehicle ("EV") drivetrains, solar inverters, wind turbine converters, industrial motor drives, and power supply systems.

The Company was founded in 1997 and has grown to employ approximately 8,400 individuals worldwide across its operations in Germany, the United States, Singapore, the People's Republic of China ("PRC"), and the Czech Republic. Halcyon's research and development capabilities are centered in Munich, Germany, with fabrication ("fab") operations located in Dresden, Germany.

Halcyon's ordinary shares (Stammaktien) are currently listed on the Frankfurt Stock Exchange ("FRA") under the ticker symbol "HCY" in the Prime Standard segment of the FRA's Regulated Market (Regulierter Markt). As of January 10, 2026, the Company had 215,000,000 ordinary shares outstanding (no par value, nennwertlose Stückaktien), resulting in a market capitalization of approximately €8.6 billion based on the closing share price on that date.

The Company's registered office and principal headquarters are located at Maximilianstraße 72, 80539 Munich, Germany.

C. Material Subsidiaries

Halcyon conducts its global operations through five material wholly-owned subsidiaries, each of which is described in detail below. For purposes of the PFIC analysis, the look-through rule under Section 1297(c) of the Code applies to each subsidiary, as Halcyon owns at least 25% of the value of the stock of each such entity (in fact, Halcyon owns 100% of each).

1. Halcyon Semiconductor USA Inc.

• Jurisdiction: Incorporated in the State of Delaware.

• Ownership: 100% owned by Halcyon Semiconductor AG (direct).

• Principal Activities: US sales operations, application engineering, and customer support for North American customers, including major automotive and industrial OEMs.

• Registered Agent: 1209 Orange Street, Wilmington, Delaware 19801.

• Principal Office: 2500 Augustine Drive, Suite 100, Santa Clara, California 95054.

• Employer Identification Number (EIN): 84-3927561.

2. Halcyon Power Solutions GmbH

• Jurisdiction: Organized as a Gesellschaft mit beschränkter Haftung (GmbH) under the laws of the Federal Republic of Germany; registered in Dresden.

• Ownership: 100% owned by Halcyon Semiconductor AG (direct).

• Principal Activities: SiC fabrication operations, including Fab 2 (operational) and Fab 3 (currently under construction), both located in Dresden, Saxony, Germany. This subsidiary is the primary manufacturing entity within the Halcyon group.

3. Halcyon Asia Pacific Pte. Ltd.

• Jurisdiction: Incorporated in the Republic of Singapore.

• Ownership: 100% owned by Halcyon Semiconductor AG (direct).

• Principal Activities: Asia-Pacific regional sales hub, including distribution, marketing, and technical sales support for customers in Japan, South Korea, Taiwan, India, and Southeast Asia.

4. Halcyon Shanghai Semiconductor Co., Ltd.

• Jurisdiction: Organized as a wholly foreign-owned enterprise ("WFOE") under the laws of the People's Republic of China; registered in Shanghai.

• Ownership: 100% owned by Halcyon Semiconductor AG (direct).

• Principal Activities: China market sales, local customer engineering support, and design center operations.

5. Halcyon Automotive Components s.r.o.

• Jurisdiction: Organized as a společnost s ručením omezeným (s.r.o.) under the laws of the Czech Republic; registered in Brno.

• Ownership: 100% owned by Halcyon Semiconductor AG (direct).

• Principal Activities: Module assembly and back-end testing operations for Halcyon's automotive-grade power semiconductor modules.

D. Sources Reviewed

In preparing this memorandum, we have reviewed the following materials, which were provided by or on behalf of Halcyon and its advisors:

(a) Audited consolidated financial statements of Halcyon Semiconductor AG and its subsidiaries for the fiscal years ended December 31, 2023 and December 31, 2024, prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and audited by Blackmere & Whitfield GmbH Wirtschaftsprüfungsgesellschaft (Munich, Germany), with the PCAOB-registered affiliate Blackmere & Whitfield LLP (New York, New York) serving as co-auditor for US reporting purposes.

(b) Unaudited consolidated financial data for FY2025 (the fiscal year ended December 31, 2025), as provided by Katarina Dalmqvist, Chief Financial Officer of Halcyon, and the Halcyon finance team, through management responses to due diligence requests.

(c) Due diligence document requests and corresponding responses coordinated with Bähr Stein Rechtsanwälte PartGmbB (Frankfurt am Main), German counsel to Halcyon in connection with the Offering, including corporate organizational documents, subsidiary registers, and inter-company agreements.

(d) Treasury and investment portfolio schedules detailing the composition of cash and cash equivalents, short-term investments, and money market fund holdings as of each quarter-end date for FY2023, FY2024, and FY2025.

(e) Consolidated fixed asset registers and asset ledgers for the Halcyon group, including property, plant, and equipment ("PP&E") schedules, intangible asset registers, and construction-in-progress accounts.

(f) Inter-company transaction summaries, including inter-company licensing agreements, service agreements, and dividend payment histories among the parent and subsidiary entities.

(g) Foreign currency hedging program documentation, including International Swaps and Derivatives Association ("ISDA") master agreements and hedging policy memoranda.

We have not independently verified the accuracy or completeness of the financial data and other factual information provided to us, and we have relied upon the representations of Halcyon's management and the audit opinions of Blackmere & Whitfield with respect to the FY2023 and FY2024 financial statements. The FY2025 financial data remains unaudited as of the date of this memorandum.

III. Legal Framework — PFIC Rules

This Part III sets forth the legal framework governing the classification of a foreign corporation as a PFIC under Subpart C of Part VI of Subchapter P of Chapter 1 of the Code (Sections 1291 through 1298). An understanding of this framework is necessary to properly evaluate Halcyon's status under both the income test and the asset test.

A. Statutory Definition (IRC § 1297(a))

Under Section 1297(a) of the Code, a foreign corporation is a PFIC for any taxable year if either of the following two tests is satisfied:

(1) Income Test. Seventy-five percent (75%) or more of the corporation's gross income for the taxable year is "passive income" (as defined in Section 1297(b) of the Code). See IRC § 1297(a)(1).

(2) Asset Test. Fifty percent (50%) or more of the average percentage of the corporation's assets (determined on the basis of fair market value, or, in certain cases, adjusted tax basis) during the taxable year produce, or are held for the production of, passive income. See IRC § 1297(a)(2).

A corporation that satisfies either test is classified as a PFIC for that taxable year. It is not necessary for both tests to be met; satisfaction of a single test is sufficient to trigger PFIC classification. Conversely, a corporation that fails to satisfy either test is not a PFIC for that year.

PFIC status is determined on an annual, year-by-year basis. A corporation's status as a PFIC in one taxable year does not automatically carry over to subsequent taxable years. However, under the so-called "once a PFIC, always a PFIC" rule of Section 1298(b)(1), once a foreign corporation is classified as a PFIC with respect to a particular US shareholder, it continues to be treated as a PFIC with respect to that shareholder for all subsequent taxable years, unless the shareholder makes a "purging election" under Section 1298(b)(1). This rule applies to the shareholder-level determination and does not alter the corporate-level annual determination.

B. Definition of "Passive Income" (IRC § 1297(b))

Section 1297(b)(1) of the Code defines "passive income" for purposes of the PFIC rules by reference to the definition of "foreign personal holding company income" ("FPHCI") in Section 954(c) of the Code, subject to certain modifications set forth in Section 1297(b)(2).

FPHCI, as defined in Section 954(c), includes the following categories of income:

(i) Dividends, interest, royalties, rents, and annuities. See IRC § 954(c)(1)(A), (B).

(ii) Net gains from the disposition of property that gives rise to dividends, interest, royalties, rents, or annuities. See IRC § 954(c)(1)(B)(i).

(iii) Net gains from commodity transactions, subject to certain exceptions for active business commodity transactions. See IRC § 954(c)(1)(C).

(iv) Net gains from foreign currency transactions, including transactions in foreign currency, foreign currency-denominated contracts, and similar instruments. See IRC § 954(c)(1)(D).

(v) Income equivalent to interest, including income from financing arrangements that are the economic equivalent of lending transactions. See IRC § 954(c)(1)(E).

(vi) Net income from notional principal contracts. See IRC § 954(c)(1)(F).

(vii) Certain payments in lieu of dividends. See IRC § 954(c)(1)(G).

Several important exclusions and modifications to the definition of passive income are relevant to the Halcyon analysis:

(a) Active Rents and Royalties Exception. Rents and royalties that are derived in the active conduct of a trade or business and that are received from unrelated persons are excluded from passive income under Section 954(c)(2)(A) of the Code. This exclusion is relevant to the extent Halcyon or any of its subsidiaries receives rental or royalty income from third parties in connection with its active semiconductor business.

(b) Look-Through Rule for Related-Person Transactions. Under Section 1297(b)(2)(B) of the Code, dividends, interest, rents, and royalties received or accrued from a related person (within the meaning of Section 954(d)(3)) are not treated as passive income to the extent they are properly allocable to income of the related person that is not passive income. This look-through rule is particularly relevant when analyzing inter-company payments within the Halcyon group.

(c) Active Manufacturing and Sales Income. Income derived from the active conduct of manufacturing and sales activities — such as revenue from the design, fabrication, and sale of semiconductor devices — is not passive income. Active business income from Halcyon's core semiconductor operations clearly falls outside the definition of FPHCI.

(d) Hedging Exception. Net gains or losses from foreign currency transactions or commodity transactions that qualify as "bona fide hedging transactions" within the meaning of Section 954(c)(1)(D) and the applicable Treasury Regulations are generally excluded from FPHCI. This exception is relevant to Halcyon's foreign currency hedging program.

C. Asset Test Methodology

The asset test under Section 1297(a)(2) requires a determination of the average percentage of a corporation's assets that produce, or are held for the production of, passive income during the taxable year.

Measurement Basis. There are two permissible methods for measuring assets:

(i) Fair Market Value Method. Under this method, assets are measured at their fair market value. This method is required for any corporation the stock of which is publicly traded on a securities exchange. See Treas. Reg. § 1.1297-1(d)(1)(v). Because Halcyon's ordinary shares are listed and actively traded on the Frankfurt Stock Exchange (Prime Standard segment), the fair market value method is the applicable methodology.

(ii) Adjusted Tax Basis Method. Under this alternative method, assets are measured at their adjusted bases for tax purposes. This method is available only to corporations that are not publicly traded and that elect to use it. See Treas. Reg. § 1.1297-1(d)(1)(iii). This method is not available to Halcyon given its public trading status on the Frankfurt Stock Exchange.

Quarterly Measurement. Assets are measured on a quarterly basis, and the PFIC asset test is applied based on the average of the four quarterly measuring dates during the taxable year. The measuring dates are the end of each calendar quarter (i.e., March 31, June 30, September 30, and December 31 for a calendar-year taxpayer such as Halcyon). The ratios are calculated at each quarter-end, and the average of the four quarterly ratios determines whether the 50% threshold is satisfied for the taxable year as a whole.

Treatment of Working Capital and Cash. Cash, cash equivalents, money market fund holdings, and short-term treasury securities are generally treated as passive assets for purposes of the PFIC asset test, because they produce, or are held for the production of, interest income (which is passive income). This classification applies regardless of whether the cash is held for operational purposes or for investment purposes.

However, there is an ongoing debate in the case law and IRS guidance as to whether a "working capital exception" exists that would permit the exclusion of cash held to fund day-to-day operational expenses from the passive asset category. The IRS has not formally recognized a blanket working capital exception for PFIC purposes, although in various contexts (including Notice 88-22 and certain informal guidance), the Service has acknowledged that the characterization of cash holdings may depend on the facts and circumstances. For purposes of this analysis, we have adopted a conservative approach and treated all cash and cash equivalents as passive assets.

Look-Through Rule (§ 1297(c)). Under Section 1297(c) of the Code, a corporation that owns at least 25% of the value of the stock of another corporation is treated, for purposes of both the income test and the asset test, as if it:

(A) held its proportionate share of the assets of such other corporation; and

(B) received directly its proportionate share of the income of such other corporation.

This look-through rule applies to each of Halcyon's five material subsidiaries, all of which are 100% owned. As a result, the PFIC analysis is conducted on a look-through basis, attributing the assets and income of each subsidiary directly to Halcyon in proportion to Halcyon's ownership interest (100% in each case).

D. Measuring Date Convention

For purposes of the asset test, quarterly averaging is performed based on the fair market value of assets at the end of each calendar quarter: March 31, June 30, September 30, and December 31. This convention has been applied consistently across all three taxable years under review (FY2023, FY2024, and FY2025).

For purposes of the income test, passive income and total gross income are measured on a full-year basis for each taxable year. No quarterly measurement is required for the income test.

IV. Income Test Analysis

A. Methodology

The income test analysis proceeds as follows:

Step 1. Identify and quantify total gross income of the Halcyon consolidated group (on a look-through basis, inclusive of all subsidiary income) for each fiscal year.

Step 2. Categorize each component of gross income as either "passive income" (within the meaning of Section 1297(b) of the Code, as discussed in Part III.B above) or "non-passive income" (i.e., active business income).

Step 3. Calculate the ratio of passive income to total gross income for each fiscal year.

Step 4. Compare the resulting ratio to the statutory threshold: a corporation is a PFIC under the income test if 75% or more of its gross income is passive.

As a practical matter, the income test analysis for Halcyon focuses on confirming that passive income constitutes a de minimis percentage of total gross income — well below even 25% — rather than evaluating proximity to the 75% threshold. Halcyon's business is fundamentally an active semiconductor manufacturing and sales enterprise, and substantially all of its revenue is derived from the active conduct of that business. The analysis below confirms that passive income for each fiscal year under review is less than 1% of total gross income.

B. FY2023 Analysis

Total Revenue. For the fiscal year ended December 31, 2023, Halcyon reported total consolidated revenue of €3,214 million. This revenue was derived substantially entirely from the design, manufacture, and sale of power semiconductor products — specifically, SiC and GaN devices and modules — to customers in the automotive, industrial automation, and renewable energy sectors. Revenue from semiconductor product sales constitutes active manufacturing and sales income and is unambiguously classified as non-passive income for PFIC purposes.

Other Income Components. We reviewed each non-revenue income line item reported in Halcyon's FY2023 consolidated financial statements:

Interest Income. Halcyon earned interest income on its cash deposits and short-term money market investments during FY2023, estimated at approximately €8 million to €12 million. This interest income constitutes passive income under Section 954(c)(1)(A) of the Code.

Foreign Currency Gains and Losses. The Company reported net immaterial amounts of foreign currency gains and losses during FY2023, arising primarily from the hedging of operational exposures (principally EUR/USD and EUR/CNY hedges on trade receivables and payables). To the extent that currency gains arise from hedging transactions that are directly related to active trade receivables denominated in foreign currencies, there is a supportable argument for non-passive characterization under the hedging exception of Section 954(c)(1)(D). On a net basis, these amounts were immaterial in either direction.

Inter-Company Dividends and Royalties. Inter-company dividends and royalty payments from subsidiaries to the parent entity are eliminated in consolidation under IFRS. For PFIC purposes, the look-through rule under Section 1297(c) applies — income at the subsidiary level is characterized based on its nature at the subsidiary (all subsidiaries are active operating entities), and the inter-company payments themselves are disregarded. Accordingly, no separate passive income characterization applies to these items.

Other Items. Halcyon did not receive any significant rents or royalties from unrelated persons during FY2023. The Company does not maintain a meaningful equity investment portfolio, and no income was derived from portfolio investments or passive financial instruments during the period.

Passive Income Calculation. Under a conservative approach, treating all estimated interest income as passive income:

Passive income: approximately €10 million (midpoint estimate) Total gross income: approximately €3,214 million Passive income ratio: €10 million ÷ €3,214 million ≈ 0.3%

This ratio is far below the 75% statutory threshold. Even under the most conservative assumptions, including an upward adjustment to interest income or the classification of immaterial currency gains as passive, the passive income ratio for FY2023 would remain below 1%.

Conclusion: The income test is NOT satisfied for FY2023. Halcyon is not a PFIC under the income test for this taxable year.

C. FY2024 Analysis

Total Revenue. For the fiscal year ended December 31, 2024, Halcyon reported total consolidated revenue of €3,508 million, representing year-over-year growth of approximately 9.1% compared to FY2023. The character of this revenue is identical to FY2023 — it consists almost entirely of active semiconductor manufacturing and sales income from the Company's core business operations.

Other Income Components. The composition of non-revenue income items in FY2024 was substantially similar to FY2023, with the following notable items:

Interest Income. As Halcyon's cash position grew from €520 million at the end of FY2023 to €610 million at the end of FY2024 (reflecting strong free cash flow generation and disciplined capital allocation), interest income also increased modestly. Estimated interest income for FY2024 was approximately €12 million to €16 million, reflecting higher average cash balances during the year and prevailing European money market rates.

Foreign Currency Items. Net foreign currency gains and losses remained immaterial in FY2024, consistent with the Company's active hedging program.

Other Items. No significant changes in the composition of other income items relative to FY2023.

Passive Income Calculation.

Passive income: approximately €14 million (midpoint estimate) Total gross income: approximately €3,508 million Passive income ratio: €14 million ÷ €3,508 million ≈ 0.4%

As with FY2023, this ratio falls far below the 75% threshold. The modest increase in the passive income ratio reflects the growth in cash balances and corresponding interest income, but remains negligible relative to the Company's active revenue base.

Conclusion: The income test is NOT satisfied for FY2024. Halcyon is not a PFIC under the income test for this taxable year.

D. FY2025 Analysis (Unaudited)

Total Revenue. For the fiscal year ended December 31, 2025, Halcyon reported unaudited total consolidated revenue of €3,820 million, reflecting continued strong growth of approximately 8.9% over FY2024. Revenue growth was driven by increasing demand for SiC and GaN power devices in the automotive electrification and renewable energy sectors. This revenue remains entirely active semiconductor manufacturing and sales income.

Operating Performance. The Company reported EBITDA of €1,069 million for FY2025, representing an EBITDA margin of 28.0% (up from 27.5% in FY2024 and 27.0% in FY2023). Net income for FY2025 was €612 million, up from €541 million in FY2024. These metrics confirm robust active operating income and underscore that the Company's earnings are overwhelmingly derived from its active semiconductor business rather than from passive investment activities.

Other Income Components.

Interest Income. Halcyon's cash position grew to €740 million at the end of FY2025, reflecting continued strong free cash flow generation and a net debt position of only €150 million (down from €660 million at the end of FY2023). Estimated interest income for FY2025 was approximately €18 million to €24 million, reflecting higher average cash balances and prevailing interest rate environments in the eurozone. While this represents a higher absolute level of interest income compared to prior years, it remains de minimis as a percentage of total gross income.

Other Items. No material changes in the composition of other income items relative to prior years.

Passive Income Calculation.

Passive income: approximately €21 million (midpoint estimate) Total gross income: approximately €3,820 million Passive income ratio: €21 million ÷ €3,820 million ≈ 0.5%

The gradual increase in the passive income ratio from 0.3% in FY2023 to 0.5% in FY2025 reflects the Company's growing cash position and the corresponding increase in interest income. However, this ratio remains trivially small and is not within any meaningful proximity to the 75% statutory threshold.

Conclusion: The income test is NOT satisfied for FY2025. Halcyon is not a PFIC under the income test for this taxable year.

E. Summary — Income Test All Years

The following table summarizes the passive income analysis for each taxable year under review:

In all three taxable years, the passive income ratio falls far below the 75% statutory threshold. The Company's active semiconductor revenue — ranging from approximately €3.2 billion to €3.8 billion annually — constitutes the overwhelming majority (over 99%) of total gross income. Even a hypothetical and substantial increase in interest income from cash holdings (for example, a doubling or trebling of current levels) would not bring the passive income ratio within any meaningful proximity to the 75% threshold, given the magnitude of the Company's active revenue base.

V. Asset Test Analysis

A. Methodology

The asset test analysis proceeds as follows:

Step 1. Calculate the total fair market value of all assets of the Halcyon consolidated group (on a look-through basis) at the end of each calendar quarter during the taxable year.

Step 2. Classify each asset category as either a "passive asset" (an asset that produces, or is held for the production of, passive income) or an "active asset" (an asset used in the active conduct of a trade or business).

Step 3. Calculate the ratio of passive assets to total assets at each quarterly measuring date.

Step 4. Average the four quarterly ratios to determine the average percentage of passive assets for the taxable year.

Step 5. Compare the resulting average percentage to the statutory threshold: a corporation is a PFIC under the asset test if 50% or more of the average percentage of its assets are passive.

As discussed in Part III.C above, the fair market value method is required because Halcyon is a publicly traded corporation. The look-through rule of Section 1297(c) applies to attribute subsidiary assets directly to Halcyon in proportion to Halcyon's 100% ownership interest in each subsidiary.

For purposes of the analysis below, we have used total consolidated book assets (as reported under IFRS) as a proxy for total asset fair market value at each quarter-end, except where fair market value adjustments are specifically discussed (principally in connection with the impact of market capitalization on the fair market value methodology, addressed in Part V.F below). This approach is conservative because the fair market value of Halcyon's total assets — which would incorporate the premium reflected in the Company's market capitalization — exceeds book value, and the excess is attributable to active business assets (intangible value, goodwill, and franchise value associated with the active semiconductor business), thereby reducing the passive asset ratio under the fair market value method.

B. Classification of Major Asset Categories

1. Active Assets

The following asset categories are classified as active assets — that is, assets used in, or arising from, the active conduct of Halcyon's semiconductor manufacturing and sales business:

(a) Property, Plant, and Equipment (PP&E). Halcyon's semiconductor fabrication facilities and manufacturing equipment constitute the single largest active asset category. This includes Fab 2 (SiC fabrication, operational, located in Dresden, Germany), Fab 3 (SiC fabrication, under construction in Dresden), the Munich headquarters campus (including R&D laboratories), and all associated production equipment, cleanroom infrastructure, and support facilities. PP&E at each subsidiary location — including the Brno assembly and testing facility — is likewise classified as active. Manufacturing equipment for semiconductor fabrication is unambiguously used in the active conduct of the Company's core business and generates active income (semiconductor product revenue).

(b) Intangible Assets. The Company's portfolio of patents covering SiC and GaN power semiconductor technology, registered trademarks and trade names, trade secrets and proprietary know-how, and goodwill arising from active business operations are all classified as active assets. These intangible assets are directly utilized in the generation of active manufacturing and sales income and are not held for the production of passive income.

(c) Inventory. Work-in-process ("WIP") and finished goods inventory consisting of semiconductor wafers, dies, packaged devices, and assembled power modules are active assets. Inventory is held for sale to customers in the ordinary course of the Company's active semiconductor business.

(d) Trade Receivables. Accounts receivable arising from active sales of semiconductor products to automotive, industrial, and energy customers represent active assets. These receivables are the direct product of active revenue transactions and do not generate passive income.

(e) Operating Leases and Right-of-Use Assets. Right-of-use assets recognized under IFRS 16 in connection with operating leases for office space, laboratory facilities, and equipment used in the active conduct of the Company's business are classified as active assets.

(f) Subsidiary Equity Interests (Look-Through Basis). Under the look-through rule of Section 1297(c), Halcyon's equity interests in its five material subsidiaries are not separately classified as assets for PFIC purposes. Instead, the underlying assets of each subsidiary are attributed directly to Halcyon and classified based on their character at the subsidiary level. As all five subsidiaries are active operating entities (Halcyon Semiconductor USA — sales and application engineering; Halcyon Power Solutions GmbH — SiC fabrication; Halcyon Asia Pacific Pte. Ltd. — regional sales; Halcyon Shanghai Semiconductor Co., Ltd. — sales and engineering; Halcyon Automotive Components s.r.o. — module assembly and testing), the look-through application confirms that the vast majority of subsidiary assets are active.

2. Potentially Passive Assets

The following asset categories require more careful analysis and have been conservatively classified as passive assets for purposes of this memorandum:

(a) Cash and Cash Equivalents. Halcyon held the following cash and cash equivalent balances at year-end for each fiscal year under review:

• FY2023: €520 million

• FY2024: €610 million

• FY2025: €740 million

Cash and money market fund holdings are generally classified as passive assets for PFIC purposes because they produce, or are held for the production of, interest income, which is passive income under Section 954(c)(1)(A). This general classification applies regardless of the operational purpose for which the cash is held.

However, there are arguments that a portion of the Company's cash balances should be classified as active rather than passive, to the extent such cash constitutes "working capital" that is held to fund day-to-day active business operations or is earmarked for specific active capital expenditures. In Halcyon's case, a significant portion of the Company's cash reserves is earmarked for the Fab 3 SiC fabrication facility expansion in Dresden (a major capital project that will cost approximately €1.2 billion over the 2024–2027 construction period) and for ongoing R&D expenditures on next-generation GaN power devices. The Company's annual capital expenditures have been substantial and growing — €680 million in FY2023, €750 million in FY2024, and €820 million in FY2025 — which demonstrates that cash is being actively deployed into the business rather than passively accumulated.

Notwithstanding these arguments, IRS guidance on the "working capital exception" for PFIC purposes remains uncertain. The IRS issued Notice 88-22 (1988-1 C.B. 489), which provided initial guidance on the PFIC rules but did not establish a formal working capital exception. Subsequent Treasury Regulations and informal guidance have not definitively resolved the treatment of operational cash balances. In light of this uncertainty, we have adopted a conservative approach in this memorandum and classified all cash and cash equivalents as passive assets. We note that even under this conservative approach, the passive asset ratio remains far below the 50% threshold.

(b) Short-Term Investments and Treasury Securities. To the extent Halcyon holds short-term government securities, commercial paper, or other marketable securities as part of its treasury management activities, such holdings are classified as passive assets. Based on the treasury and investment portfolio schedules reviewed, these holdings were estimated at approximately €30 million (FY2023), €35 million (FY2024), and €40 million (FY2025). These amounts are relatively modest in the context of Halcyon's total asset base.

C. FY2023 Asset Test Calculation

The asset test calculation for FY2023 is as follows:

Total consolidated assets (IFRS book value): €6,310 million

Passive assets (conservative approach):

• Cash and cash equivalents: €520 million

• Short-term investments / treasury securities: ~€30 million

• Total passive assets: ~€550 million

Active assets (residual):

• PP&E, intangible assets, inventory, trade receivables, right-of-use assets, and other operating assets: ~€5,760 million

Passive asset ratio: €550 million ÷ €6,310 million ≈ 8.7%

This ratio is based on year-end book values and represents a simplified calculation. The quarterly averaging methodology would produce a similar result, as the composition of Halcyon's assets did not fluctuate materially between quarters during FY2023.

Importantly, the fair market value method (which is required given Halcyon's public trading status) would produce an even lower passive asset ratio. As noted above, the Company's market capitalization as of the end of FY2023 exceeded the book value of total assets, with the excess reflecting the fair market value of active business intangible assets (brand value, technology leadership, customer relationships, and the going-concern premium associated with the active semiconductor franchise). Under the fair market value method, the denominator of the passive asset ratio (total assets at fair market value) would increase to reflect this premium, while the numerator (passive assets, consisting of cash and short-term investments) would remain approximately the same (cash and short-term investments are already reported at or near fair market value). The net effect is a reduction in the passive asset ratio relative to the book value approach.

Conclusion: The asset test is NOT satisfied for FY2023. The passive asset ratio of approximately 8.7% is far below the 50% statutory threshold.

D. FY2024 Asset Test Calculation

The asset test calculation for FY2024 is as follows:

Total consolidated assets (IFRS book value): €6,820 million

Passive assets (conservative approach):

• Cash and cash equivalents: €610 million

• Short-term investments / treasury securities: ~€35 million

• Total passive assets: ~€645 million

Active assets (residual): ~€6,175 million

Passive asset ratio: €645 million ÷ €6,820 million ≈ 9.5%

The modest increase in the passive asset ratio from 8.7% in FY2023 to 9.5% in FY2024 reflects the growth in the Company's cash position (from €520 million to €610 million), partially offset by growth in total assets driven by capital expenditures and the continued build-out of Fab 3. The ratio remains far below the 50% threshold.

Conclusion: The asset test is NOT satisfied for FY2024. The passive asset ratio of approximately 9.5% is far below the 50% statutory threshold.

E. FY2025 Asset Test Calculation (Unaudited)

The asset test calculation for FY2025 (based on unaudited financial data) is as follows:

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
TO: Vivienne St. Claire, Responsible Partner, Capital Markets, Calderwood & Harkness LLP Robert Adeyemi, Billing Partner, Capital Markets, Calderwood & Harkness LLP Claire Dempsey, Lead Associate, Capital Markets, Calderwood & Harkness LLP Audrey Zhou, Working Associate, Capital Markets, Calderwood & Harkness LLP
FROM: Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP
DATE: February 5, 2026
RE: Halcyon Semiconductor Aktiengesellschaft — Passive Foreign Investment Company (PFIC) Analysis Under IRC §§ 1291–1298 (FY2023–FY2025)
MATTER NO.: 1032-00003
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I. Executive Summary
The purpose of this memorandum is to analyze whether Halcyon Semiconductor Aktiengesellschaft ("Halcyon," "HSAG," or the "Company"), a German Aktiengesellschaft incorporated and registered in Munich, Bavaria (Commercial Register No. HRB 217458, Amtsgericht München), would be classified as a Passive Foreign Investment Company ("PFIC") under Sections 1291 through 1298 of the Internal Revenue Code of 1986, as amended (the "Code"), for the taxable years ended December 31, 2023, December 31, 2024, and December 31, 2025 (respectively, "FY2023," "FY2024," and "FY2025").
This analysis is prepared in connection with the Company's planned initial public offering in the United States (the "US IPO" or the "Offering"). Halcyon is pursuing the Offering via a Level III American Depositary Receipt ("ADR") program, with targeted gross proceeds of approximately $900,000,000. Registration on Form F-1 under the Securities Act of 1933, as amended (the "Securities Act"), is contemplated. American Depositary Shares ("ADSs") will represent ordinary shares (Stammaktien) of the Company at a ratio of one (1) ADS to two (2) ordinary shares, with listing targeted on the Nasdaq Global Select Market under the ticker symbol "HCYN." The PFIC determination is critical for United States holders of ADSs, as PFIC classification would impose materially adverse US federal income tax consequences on such holders, including the elimination of preferential capital gains rates and qualified dividend treatment, and the imposition of an interest charge on deferred tax amounts.
Conclusion. Based on our analysis of both the income test under Section 1297(a)(1) of the Code and the asset test under Section 1297(a)(2) of the Code for each of FY2023, FY2024, and FY2025, we conclude that Halcyon is not a PFIC for any of these taxable years. Specifically:
• Less than 25% of Halcyon's gross income for each of the three taxable years under review constitutes "passive income" as defined in Section 1297(b) of the Code. In fact, passive income represents approximately 0.3% to 0.5% of the Company's total gross income in each year, which falls far below the 75% statutory threshold.
• Less than 50% of Halcyon's assets, measured by the average fair market value on a quarterly basis, produce or are held for the production of passive income. Under conservative assumptions, passive assets represent approximately 8.7% to 10.5% of total assets in each year, well below the 50% statutory threshold.
• The active business exception applicable to the Company's semiconductor manufacturing and sales operations is clearly satisfied across all three taxable years.
Caveat. PFIC status is determined annually on a year-by-year basis. Accordingly, no assurance can be given regarding the Company's PFIC status for future taxable years, including the taxable year in which the Offering closes. The prospectus disclosure in the Form F-1 registration statement should include appropriate risk factor language addressing the possibility that PFIC status could apply in future years and describing the consequences thereof and the protective elections available to US holders.
II. Background and Scope
A. Engagement Context
Calderwood & Harkness LLP ("C&H" or the "Firm") serves as US securities counsel to Halcyon in connection with the planned ADR IPO on the Nasdaq Global Select Market. The engagement is governed by the Engagement Letter dated November 20, 2025, between C&H and Halcyon, as supplemented by Engagement Letter Supplement No. 1 dated January 15, 2026.
Pursuant to the Engagement Letter Supplement dated January 15, 2026, Leonard Cross, partner in the Firm's Tax Practice Group, was engaged as tax specialist partner to provide the following tax-related work streams in connection with the Offering:
(i) PFIC analysis for FY2023 through FY2025 (the subject of this memorandum);
(ii) US federal income tax opinion for inclusion in the prospectus section entitled "Material United States Federal Income Tax Considerations for US Holders";
(iii) Analysis of the United States–Germany Income Tax Treaty (the "Treaty") and its application to US holders of ADSs, including withholding tax rates on dividends and the availability of Treaty benefits; and
(iv) Qualified Intermediary ("QI") considerations relating to the depositary bank and the ADR facility structure.
This memorandum addresses exclusively the PFIC analysis component identified in clause (i) above. The US federal income tax opinion, Treaty analysis, and QI considerations will be addressed in separate memoranda and work product deliverables.
B. Description of Halcyon
Halcyon Semiconductor Aktiengesellschaft is a leading European semiconductor company that designs and manufactures advanced power semiconductor devices, including silicon carbide ("SiC") and gallium nitride ("GaN") chips, for end markets spanning automotive, industrial automation, and renewable energy applications. The Company's product portfolio includes power modules, discrete devices, and integrated circuit solutions that are utilized in electric vehicle ("EV") drivetrains, solar inverters, wind turbine converters, industrial motor drives, and power supply systems.
The Company was founded in 1997 and has grown to employ approximately 8,400 individuals worldwide across its operations in Germany, the United States, Singapore, the People's Republic of China ("PRC"), and the Czech Republic. Halcyon's research and development capabilities are centered in Munich, Germany, with fabrication ("fab") operations located in Dresden, Germany.
Halcyon's ordinary shares (Stammaktien) are currently listed on the Frankfurt Stock Exchange ("FRA") under the ticker symbol "HCY" in the Prime Standard segment of the FRA's Regulated Market (Regulierter Markt). As of January 10, 2026, the Company had 215,000,000 ordinary shares outstanding (no par value, nennwertlose Stückaktien), resulting in a market capitalization of approximately €8.6 billion based on the closing share price on that date.
The Company's registered office and principal headquarters are located at Maximilianstraße 72, 80539 Munich, Germany.
C. Material Subsidiaries
Halcyon conducts its global operations through five material wholly-owned subsidiaries, each of which is described in detail below. For purposes of the PFIC analysis, the look-through rule under Section 1297(c) of the Code applies to each subsidiary, as Halcyon owns at least 25% of the value of the stock of each such entity (in fact, Halcyon owns 100% of each).
1. Halcyon Semiconductor USA Inc.
• Jurisdiction: Incorporated in the State of Delaware.
• Ownership: 100% owned by Halcyon Semiconductor AG (direct).
• Principal Activities: US sales operations, application engineering, and customer support for North American customers, including major automotive and industrial OEMs.
• Registered Agent: 1209 Orange Street, Wilmington, Delaware 19801.
• Principal Office: 2500 Augustine Drive, Suite 100, Santa Clara, California 95054.
• Employer Identification Number (EIN): 84-3927561.
2. Halcyon Power Solutions GmbH
• Jurisdiction: Organized as a Gesellschaft mit beschränkter Haftung (GmbH) under the laws of the Federal Republic of Germany; registered in Dresden.
• Ownership: 100% owned by Halcyon Semiconductor AG (direct).
• Principal Activities: SiC fabrication operations, including Fab 2 (operational) and Fab 3 (currently under construction), both located in Dresden, Saxony, Germany. This subsidiary is the primary manufacturing entity within the Halcyon group.
3. Halcyon Asia Pacific Pte. Ltd.
• Jurisdiction: Incorporated in the Republic of Singapore.
• Ownership: 100% owned by Halcyon Semiconductor AG (direct).
• Principal Activities: Asia-Pacific regional sales hub, including distribution, marketing, and technical sales support for customers in Japan, South Korea, Taiwan, India, and Southeast Asia.
4. Halcyon Shanghai Semiconductor Co., Ltd.
• Jurisdiction: Organized as a wholly foreign-owned enterprise ("WFOE") under the laws of the People's Republic of China; registered in Shanghai.
• Ownership: 100% owned by Halcyon Semiconductor AG (direct).
• Principal Activities: China market sales, local customer engineering support, and design center operations.
5. Halcyon Automotive Components s.r.o.
• Jurisdiction: Organized as a společnost s ručením omezeným (s.r.o.) under the laws of the Czech Republic; registered in Brno.
• Ownership: 100% owned by Halcyon Semiconductor AG (direct).
• Principal Activities: Module assembly and back-end testing operations for Halcyon's automotive-grade power semiconductor modules.
D. Sources Reviewed
In preparing this memorandum, we have reviewed the following materials, which were provided by or on behalf of Halcyon and its advisors:
(a) Audited consolidated financial statements of Halcyon Semiconductor AG and its subsidiaries for the fiscal years ended December 31, 2023 and December 31, 2024, prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), and audited by Blackmere & Whitfield GmbH Wirtschaftsprüfungsgesellschaft (Munich, Germany), with the PCAOB-registered affiliate Blackmere & Whitfield LLP (New York, New York) serving as co-auditor for US reporting purposes.
(b) Unaudited consolidated financial data for FY2025 (the fiscal year ended December 31, 2025), as provided by Katarina Dalmqvist, Chief Financial Officer of Halcyon, and the Halcyon finance team, through management responses to due diligence requests.
(c) Due diligence document requests and corresponding responses coordinated with Bähr Stein Rechtsanwälte PartGmbB (Frankfurt am Main), German counsel to Halcyon in connection with the Offering, including corporate organizational documents, subsidiary registers, and inter-company agreements.
(d) Treasury and investment portfolio schedules detailing the composition of cash and cash equivalents, short-term investments, and money market fund holdings as of each quarter-end date for FY2023, FY2024, and FY2025.
(e) Consolidated fixed asset registers and asset ledgers for the Halcyon group, including property, plant, and equipment ("PP&E") schedules, intangible asset registers, and construction-in-progress accounts.
(f) Inter-company transaction summaries, including inter-company licensing agreements, service agreements, and dividend payment histories among the parent and subsidiary entities.
(g) Foreign currency hedging program documentation, including International Swaps and Derivatives Association ("ISDA") master agreements and hedging policy memoranda.
We have not independently verified the accuracy or completeness of the financial data and other factual information provided to us, and we have relied upon the representations of Halcyon's management and the audit opinions of Blackmere & Whitfield with respect to the FY2023 and FY2024 financial statements. The FY2025 financial data remains unaudited as of the date of this memorandum.
III. Legal Framework — PFIC Rules
This Part III sets forth the legal framework governing the classification of a foreign corporation as a PFIC under Subpart C of Part VI of Subchapter P of Chapter 1 of the Code (Sections 1291 through 1298). An understanding of this framework is necessary to properly evaluate Halcyon's status under both the income test and the asset test.
A. Statutory Definition (IRC § 1297(a))
Under Section 1297(a) of the Code, a foreign corporation is a PFIC for any taxable year if either of the following two tests is satisfied:
(1) Income Test. Seventy-five percent (75%) or more of the corporation's gross income for the taxable year is "passive income" (as defined in Section 1297(b) of the Code). See IRC § 1297(a)(1).
(2) Asset Test. Fifty percent (50%) or more of the average percentage of the corporation's assets (determined on the basis of fair market value, or, in certain cases, adjusted tax basis) during the taxable year produce, or are held for the production of, passive income. See IRC § 1297(a)(2).
A corporation that satisfies either test is classified as a PFIC for that taxable year. It is not necessary for both tests to be met; satisfaction of a single test is sufficient to trigger PFIC classification. Conversely, a corporation that fails to satisfy either test is not a PFIC for that year.
PFIC status is determined on an annual, year-by-year basis. A corporation's status as a PFIC in one taxable year does not automatically carry over to subsequent taxable years. However, under the so-called "once a PFIC, always a PFIC" rule of Section 1298(b)(1), once a foreign corporation is classified as a PFIC with respect to a particular US shareholder, it continues to be treated as a PFIC with respect to that shareholder for all subsequent taxable years, unless the shareholder makes a "purging election" under Section 1298(b)(1). This rule applies to the shareholder-level determination and does not alter the corporate-level annual determination.
B. Definition of "Passive Income" (IRC § 1297(b))
Section 1297(b)(1) of the Code defines "passive income" for purposes of the PFIC rules by reference to the definition of "foreign personal holding company income" ("FPHCI") in Section 954(c) of the Code, subject to certain modifications set forth in Section 1297(b)(2).
FPHCI, as defined in Section 954(c), includes the following categories of income:
(i) Dividends, interest, royalties, rents, and annuities. See IRC § 954(c)(1)(A), (B).
(ii) Net gains from the disposition of property that gives rise to dividends, interest, royalties, rents, or annuities. See IRC § 954(c)(1)(B)(i).
(iii) Net gains from commodity transactions, subject to certain exceptions for active business commodity transactions. See IRC § 954(c)(1)(C).
(iv) Net gains from foreign currency transactions, including transactions in foreign currency, foreign currency-denominated contracts, and similar instruments. See IRC § 954(c)(1)(D).
(v) Income equivalent to interest, including income from financing arrangements that are the economic equivalent of lending transactions. See IRC § 954(c)(1)(E).
(vi) Net income from notional principal contracts. See IRC § 954(c)(1)(F).
(vii) Certain payments in lieu of dividends. See IRC § 954(c)(1)(G).
Several important exclusions and modifications to the definition of passive income are relevant to the Halcyon analysis:
(a) Active Rents and Royalties Exception. Rents and royalties that are derived in the active conduct of a trade or business and that are received from unrelated persons are excluded from passive income under Section 954(c)(2)(A) of the Code. This exclusion is relevant to the extent Halcyon or any of its subsidiaries receives rental or royalty income from third parties in connection with its active semiconductor business.
(b) Look-Through Rule for Related-Person Transactions. Under Section 1297(b)(2)(B) of the Code, dividends, interest, rents, and royalties received or accrued from a related person (within the meaning of Section 954(d)(3)) are not treated as passive income to the extent they are properly allocable to income of the related person that is not passive income. This look-through rule is particularly relevant when analyzing inter-company payments within the Halcyon group.
(c) Active Manufacturing and Sales Income. Income derived from the active conduct of manufacturing and sales activities — such as revenue from the design, fabrication, and sale of semiconductor devices — is not passive income. Active business income from Halcyon's core semiconductor operations clearly falls outside the definition of FPHCI.
(d) Hedging Exception. Net gains or losses from foreign currency transactions or commodity transactions that qualify as "bona fide hedging transactions" within the meaning of Section 954(c)(1)(D) and the applicable Treasury Regulations are generally excluded from FPHCI. This exception is relevant to Halcyon's foreign currency hedging program.
C. Asset Test Methodology
The asset test under Section 1297(a)(2) requires a determination of the average percentage of a corporation's assets that produce, or are held for the production of, passive income during the taxable year.
Measurement Basis. There are two permissible methods for measuring assets:
(i) Fair Market Value Method. Under this method, assets are measured at their fair market value. This method is required for any corporation the stock of which is publicly traded on a securities exchange. See Treas. Reg. § 1.1297-1(d)(1)(v). Because Halcyon's ordinary shares are listed and actively traded on the Frankfurt Stock Exchange (Prime Standard segment), the fair market value method is the applicable methodology.
(ii) Adjusted Tax Basis Method. Under this alternative method, assets are measured at their adjusted bases for tax purposes. This method is available only to corporations that are not publicly traded and that elect to use it. See Treas. Reg. § 1.1297-1(d)(1)(iii). This method is not available to Halcyon given its public trading status on the Frankfurt Stock Exchange.
Quarterly Measurement. Assets are measured on a quarterly basis, and the PFIC asset test is applied based on the average of the four quarterly measuring dates during the taxable year. The measuring dates are the end of each calendar quarter (i.e., March 31, June 30, September 30, and December 31 for a calendar-year taxpayer such as Halcyon). The ratios are calculated at each quarter-end, and the average of the four quarterly ratios determines whether the 50% threshold is satisfied for the taxable year as a whole.
Treatment of Working Capital and Cash. Cash, cash equivalents, money market fund holdings, and short-term treasury securities are generally treated as passive assets for purposes of the PFIC asset test, because they produce, or are held for the production of, interest income (which is passive income). This classification applies regardless of whether the cash is held for operational purposes or for investment purposes.
However, there is an ongoing debate in the case law and IRS guidance as to whether a "working capital exception" exists that would permit the exclusion of cash held to fund day-to-day operational expenses from the passive asset category. The IRS has not formally recognized a blanket working capital exception for PFIC purposes, although in various contexts (including Notice 88-22 and certain informal guidance), the Service has acknowledged that the characterization of cash holdings may depend on the facts and circumstances. For purposes of this analysis, we have adopted a conservative approach and treated all cash and cash equivalents as passive assets.
Look-Through Rule (§ 1297(c)). Under Section 1297(c) of the Code, a corporation that owns at least 25% of the value of the stock of another corporation is treated, for purposes of both the income test and the asset test, as if it:
(A) held its proportionate share of the assets of such other corporation; and
(B) received directly its proportionate share of the income of such other corporation.
This look-through rule applies to each of Halcyon's five material subsidiaries, all of which are 100% owned. As a result, the PFIC analysis is conducted on a look-through basis, attributing the assets and income of each subsidiary directly to Halcyon in proportion to Halcyon's ownership interest (100% in each case).
D. Measuring Date Convention
For purposes of the asset test, quarterly averaging is performed based on the fair market value of assets at the end of each calendar quarter: March 31, June 30, September 30, and December 31. This convention has been applied consistently across all three taxable years under review (FY2023, FY2024, and FY2025).
For purposes of the income test, passive income and total gross income are measured on a full-year basis for each taxable year. No quarterly measurement is required for the income test.
IV. Income Test Analysis
A. Methodology
The income test analysis proceeds as follows:
Step 1. Identify and quantify total gross income of the Halcyon consolidated group (on a look-through basis, inclusive of all subsidiary income) for each fiscal year.
Step 2. Categorize each component of gross income as either "passive income" (within the meaning of Section 1297(b) of the Code, as discussed in Part III.B above) or "non-passive income" (i.e., active business income).
Step 3. Calculate the ratio of passive income to total gross income for each fiscal year.
Step 4. Compare the resulting ratio to the statutory threshold: a corporation is a PFIC under the income test if 75% or more of its gross income is passive.
As a practical matter, the income test analysis for Halcyon focuses on confirming that passive income constitutes a de minimis percentage of total gross income — well below even 25% — rather than evaluating proximity to the 75% threshold. Halcyon's business is fundamentally an active semiconductor manufacturing and sales enterprise, and substantially all of its revenue is derived from the active conduct of that business. The analysis below confirms that passive income for each fiscal year under review is less than 1% of total gross income.
B. FY2023 Analysis
Total Revenue. For the fiscal year ended December 31, 2023, Halcyon reported total consolidated revenue of €3,214 million. This revenue was derived substantially entirely from the design, manufacture, and sale of power semiconductor products — specifically, SiC and GaN devices and modules — to customers in the automotive, industrial automation, and renewable energy sectors. Revenue from semiconductor product sales constitutes active manufacturing and sales income and is unambiguously classified as non-passive income for PFIC purposes.
Other Income Components. We reviewed each non-revenue income line item reported in Halcyon's FY2023 consolidated financial statements:
Interest Income. Halcyon earned interest income on its cash deposits and short-term money market investments during FY2023, estimated at approximately €8 million to €12 million. This interest income constitutes passive income under Section 954(c)(1)(A) of the Code.
Foreign Currency Gains and Losses. The Company reported net immaterial amounts of foreign currency gains and losses during FY2023, arising primarily from the hedging of operational exposures (principally EUR/USD and EUR/CNY hedges on trade receivables and payables). To the extent that currency gains arise from hedging transactions that are directly related to active trade receivables denominated in foreign currencies, there is a supportable argument for non-passive characterization under the hedging exception of Section 954(c)(1)(D). On a net basis, these amounts were immaterial in either direction.
Inter-Company Dividends and Royalties. Inter-company dividends and royalty payments from subsidiaries to the parent entity are eliminated in consolidation under IFRS. For PFIC purposes, the look-through rule under Section 1297(c) applies — income at the subsidiary level is characterized based on its nature at the subsidiary (all subsidiaries are active operating entities), and the inter-company payments themselves are disregarded. Accordingly, no separate passive income characterization applies to these items.
Other Items. Halcyon did not receive any significant rents or royalties from unrelated persons during FY2023. The Company does not maintain a meaningful equity investment portfolio, and no income was derived from portfolio investments or passive financial instruments during the period.
Passive Income Calculation. Under a conservative approach, treating all estimated interest income as passive income:
Passive income: approximately €10 million (midpoint estimate) Total gross income: approximately €3,214 million Passive income ratio: €10 million ÷ €3,214 million ≈ 0.3%
This ratio is far below the 75% statutory threshold. Even under the most conservative assumptions, including an upward adjustment to interest income or the classification of immaterial currency gains as passive, the passive income ratio for FY2023 would remain below 1%.
Conclusion: The income test is NOT satisfied for FY2023. Halcyon is not a PFIC under the income test for this taxable year.
C. FY2024 Analysis
Total Revenue. For the fiscal year ended December 31, 2024, Halcyon reported total consolidated revenue of €3,508 million, representing year-over-year growth of approximately 9.1% compared to FY2023. The character of this revenue is identical to FY2023 — it consists almost entirely of active semiconductor manufacturing and sales income from the Company's core business operations.
Other Income Components. The composition of non-revenue income items in FY2024 was substantially similar to FY2023, with the following notable items:
Interest Income. As Halcyon's cash position grew from €520 million at the end of FY2023 to €610 million at the end of FY2024 (reflecting strong free cash flow generation and disciplined capital allocation), interest income also increased modestly. Estimated interest income for FY2024 was approximately €12 million to €16 million, reflecting higher average cash balances during the year and prevailing European money market rates.
Foreign Currency Items. Net foreign currency gains and losses remained immaterial in FY2024, consistent with the Company's active hedging program.
Other Items. No significant changes in the composition of other income items relative to FY2023.
Passive Income Calculation.
Passive income: approximately €14 million (midpoint estimate) Total gross income: approximately €3,508 million Passive income ratio: €14 million ÷ €3,508 million ≈ 0.4%
As with FY2023, this ratio falls far below the 75% threshold. The modest increase in the passive income ratio reflects the growth in cash balances and corresponding interest income, but remains negligible relative to the Company's active revenue base.
Conclusion: The income test is NOT satisfied for FY2024. Halcyon is not a PFIC under the income test for this taxable year.
D. FY2025 Analysis (Unaudited)
Total Revenue. For the fiscal year ended December 31, 2025, Halcyon reported unaudited total consolidated revenue of €3,820 million, reflecting continued strong growth of approximately 8.9% over FY2024. Revenue growth was driven by increasing demand for SiC and GaN power devices in the automotive electrification and renewable energy sectors. This revenue remains entirely active semiconductor manufacturing and sales income.
Operating Performance. The Company reported EBITDA of €1,069 million for FY2025, representing an EBITDA margin of 28.0% (up from 27.5% in FY2024 and 27.0% in FY2023). Net income for FY2025 was €612 million, up from €541 million in FY2024. These metrics confirm robust active operating income and underscore that the Company's earnings are overwhelmingly derived from its active semiconductor business rather than from passive investment activities.
Other Income Components.
Interest Income. Halcyon's cash position grew to €740 million at the end of FY2025, reflecting continued strong free cash flow generation and a net debt position of only €150 million (down from €660 million at the end of FY2023). Estimated interest income for FY2025 was approximately €18 million to €24 million, reflecting higher average cash balances and prevailing interest rate environments in the eurozone. While this represents a higher absolute level of interest income compared to prior years, it remains de minimis as a percentage of total gross income.
Other Items. No material changes in the composition of other income items relative to prior years.
Passive Income Calculation.
Passive income: approximately €21 million (midpoint estimate) Total gross income: approximately €3,820 million Passive income ratio: €21 million ÷ €3,820 million ≈ 0.5%
The gradual increase in the passive income ratio from 0.3% in FY2023 to 0.5% in FY2025 reflects the Company's growing cash position and the corresponding increase in interest income. However, this ratio remains trivially small and is not within any meaningful proximity to the 75% statutory threshold.
Conclusion: The income test is NOT satisfied for FY2025. Halcyon is not a PFIC under the income test for this taxable year.
E. Summary — Income Test All Years
The following table summarizes the passive income analysis for each taxable year under review:
In all three taxable years, the passive income ratio falls far below the 75% statutory threshold. The Company's active semiconductor revenue — ranging from approximately €3.2 billion to €3.8 billion annually — constitutes the overwhelming majority (over 99%) of total gross income. Even a hypothetical and substantial increase in interest income from cash holdings (for example, a doubling or trebling of current levels) would not bring the passive income ratio within any meaningful proximity to the 75% threshold, given the magnitude of the Company's active revenue base.
V. Asset Test Analysis
A. Methodology
The asset test analysis proceeds as follows:
Step 1. Calculate the total fair market value of all assets of the Halcyon consolidated group (on a look-through basis) at the end of each calendar quarter during the taxable year.
Step 2. Classify each asset category as either a "passive asset" (an asset that produces, or is held for the production of, passive income) or an "active asset" (an asset used in the active conduct of a trade or business).
Step 3. Calculate the ratio of passive assets to total assets at each quarterly measuring date.
Step 4. Average the four quarterly ratios to determine the average percentage of passive assets for the taxable year.
Step 5. Compare the resulting average percentage to the statutory threshold: a corporation is a PFIC under the asset test if 50% or more of the average percentage of its assets are passive.
As discussed in Part III.C above, the fair market value method is required because Halcyon is a publicly traded corporation. The look-through rule of Section 1297(c) applies to attribute subsidiary assets directly to Halcyon in proportion to Halcyon's 100% ownership interest in each subsidiary.
For purposes of the analysis below, we have used total consolidated book assets (as reported under IFRS) as a proxy for total asset fair market value at each quarter-end, except where fair market value adjustments are specifically discussed (principally in connection with the impact of market capitalization on the fair market value methodology, addressed in Part V.F below). This approach is conservative because the fair market value of Halcyon's total assets — which would incorporate the premium reflected in the Company's market capitalization — exceeds book value, and the excess is attributable to active business assets (intangible value, goodwill, and franchise value associated with the active semiconductor business), thereby reducing the passive asset ratio under the fair market value method.
B. Classification of Major Asset Categories
1. Active Assets
The following asset categories are classified as active assets — that is, assets used in, or arising from, the active conduct of Halcyon's semiconductor manufacturing and sales business:
(a) Property, Plant, and Equipment (PP&E). Halcyon's semiconductor fabrication facilities and manufacturing equipment constitute the single largest active asset category. This includes Fab 2 (SiC fabrication, operational, located in Dresden, Germany), Fab 3 (SiC fabrication, under construction in Dresden), the Munich headquarters campus (including R&D laboratories), and all associated production equipment, cleanroom infrastructure, and support facilities. PP&E at each subsidiary location — including the Brno assembly and testing facility — is likewise classified as active. Manufacturing equipment for semiconductor fabrication is unambiguously used in the active conduct of the Company's core business and generates active income (semiconductor product revenue).
(b) Intangible Assets. The Company's portfolio of patents covering SiC and GaN power semiconductor technology, registered trademarks and trade names, trade secrets and proprietary know-how, and goodwill arising from active business operations are all classified as active assets. These intangible assets are directly utilized in the generation of active manufacturing and sales income and are not held for the production of passive income.
(c) Inventory. Work-in-process ("WIP") and finished goods inventory consisting of semiconductor wafers, dies, packaged devices, and assembled power modules are active assets. Inventory is held for sale to customers in the ordinary course of the Company's active semiconductor business.
(d) Trade Receivables. Accounts receivable arising from active sales of semiconductor products to automotive, industrial, and energy customers represent active assets. These receivables are the direct product of active revenue transactions and do not generate passive income.
(e) Operating Leases and Right-of-Use Assets. Right-of-use assets recognized under IFRS 16 in connection with operating leases for office space, laboratory facilities, and equipment used in the active conduct of the Company's business are classified as active assets.
(f) Subsidiary Equity Interests (Look-Through Basis). Under the look-through rule of Section 1297(c), Halcyon's equity interests in its five material subsidiaries are not separately classified as assets for PFIC purposes. Instead, the underlying assets of each subsidiary are attributed directly to Halcyon and classified based on their character at the subsidiary level. As all five subsidiaries are active operating entities (Halcyon Semiconductor USA — sales and application engineering; Halcyon Power Solutions GmbH — SiC fabrication; Halcyon Asia Pacific Pte. Ltd. — regional sales; Halcyon Shanghai Semiconductor Co., Ltd. — sales and engineering; Halcyon Automotive Components s.r.o. — module assembly and testing), the look-through application confirms that the vast majority of subsidiary assets are active.
2. Potentially Passive Assets
The following asset categories require more careful analysis and have been conservatively classified as passive assets for purposes of this memorandum:
(a) Cash and Cash Equivalents. Halcyon held the following cash and cash equivalent balances at year-end for each fiscal year under review:
• FY2023: €520 million
• FY2024: €610 million
• FY2025: €740 million
Cash and money market fund holdings are generally classified as passive assets for PFIC purposes because they produce, or are held for the production of, interest income, which is passive income under Section 954(c)(1)(A). This general classification applies regardless of the operational purpose for which the cash is held.
However, there are arguments that a portion of the Company's cash balances should be classified as active rather than passive, to the extent such cash constitutes "working capital" that is held to fund day-to-day active business operations or is earmarked for specific active capital expenditures. In Halcyon's case, a significant portion of the Company's cash reserves is earmarked for the Fab 3 SiC fabrication facility expansion in Dresden (a major capital project that will cost approximately €1.2 billion over the 2024–2027 construction period) and for ongoing R&D expenditures on next-generation GaN power devices. The Company's annual capital expenditures have been substantial and growing — €680 million in FY2023, €750 million in FY2024, and €820 million in FY2025 — which demonstrates that cash is being actively deployed into the business rather than passively accumulated.
Notwithstanding these arguments, IRS guidance on the "working capital exception" for PFIC purposes remains uncertain. The IRS issued Notice 88-22 (1988-1 C.B. 489), which provided initial guidance on the PFIC rules but did not establish a formal working capital exception. Subsequent Treasury Regulations and informal guidance have not definitively resolved the treatment of operational cash balances. In light of this uncertainty, we have adopted a conservative approach in this memorandum and classified all cash and cash equivalents as passive assets. We note that even under this conservative approach, the passive asset ratio remains far below the 50% threshold.
(b) Short-Term Investments and Treasury Securities. To the extent Halcyon holds short-term government securities, commercial paper, or other marketable securities as part of its treasury management activities, such holdings are classified as passive assets. Based on the treasury and investment portfolio schedules reviewed, these holdings were estimated at approximately €30 million (FY2023), €35 million (FY2024), and €40 million (FY2025). These amounts are relatively modest in the context of Halcyon's total asset base.
C. FY2023 Asset Test Calculation
The asset test calculation for FY2023 is as follows:
Total consolidated assets (IFRS book value): €6,310 million
Passive assets (conservative approach):
• Cash and cash equivalents: €520 million
• Short-term investments / treasury securities: ~€30 million
• Total passive assets: ~€550 million
Active assets (residual):
• PP&E, intangible assets, inventory, trade receivables, right-of-use assets, and other operating assets: ~€5,760 million
Passive asset ratio: €550 million ÷ €6,310 million ≈ 8.7%
This ratio is based on year-end book values and represents a simplified calculation. The quarterly averaging methodology would produce a similar result, as the composition of Halcyon's assets did not fluctuate materially between quarters during FY2023.
Importantly, the fair market value method (which is required given Halcyon's public trading status) would produce an even lower passive asset ratio. As noted above, the Company's market capitalization as of the end of FY2023 exceeded the book value of total assets, with the excess reflecting the fair market value of active business intangible assets (brand value, technology leadership, customer relationships, and the going-concern premium associated with the active semiconductor franchise). Under the fair market value method, the denominator of the passive asset ratio (total assets at fair market value) would increase to reflect this premium, while the numerator (passive assets, consisting of cash and short-term investments) would remain approximately the same (cash and short-term investments are already reported at or near fair market value). The net effect is a reduction in the passive asset ratio relative to the book value approach.
Conclusion: The asset test is NOT satisfied for FY2023. The passive asset ratio of approximately 8.7% is far below the 50% statutory threshold.
D. FY2024 Asset Test Calculation
The asset test calculation for FY2024 is as follows:
Total consolidated assets (IFRS book value): €6,820 million
Passive assets (conservative approach):
• Cash and cash equivalents: €610 million
• Short-term investments / treasury securities: ~€35 million
• Total passive assets: ~€645 million
Active assets (residual): ~€6,175 million
Passive asset ratio: €645 million ÷ €6,820 million ≈ 9.5%
The modest increase in the passive asset ratio from 8.7% in FY2023 to 9.5% in FY2024 reflects the growth in the Company's cash position (from €520 million to €610 million), partially offset by growth in total assets driven by capital expenditures and the continued build-out of Fab 3. The ratio remains far below the 50% threshold.
Conclusion: The asset test is NOT satisfied for FY2024. The passive asset ratio of approximately 9.5% is far below the 50% statutory threshold.
E. FY2025 Asset Test Calculation (Unaudited)
The asset test calculation for FY2025 (based on unaudited financial data) is as follows:
Total consolidated assets (IFRS book value): €7,450 million
Passive assets (conservative approach):
• Cash and cash equivalents: €740 million
• Short-term investments / treasury securities: ~€40 million
• Total passive assets: ~€780 million
Active assets (residual): ~€6,670 million
Passive asset ratio: €780 million ÷ €7,450 million ≈ 10.5%
The continued increase in the passive asset ratio to 10.5% reflects the growth of Halcyon's cash position from €520 million at year-end FY2023 to €740 million at year-end FY2025. This growth in cash is a function of the Company's strong free cash flow generation (driven by EBITDA margins of 27–28% and growing revenue) and the Company's disciplined approach to debt reduction (total debt has declined from €1,180 million to €890 million over the three-year period, resulting in net debt declining from €660 million to €150 million).
Several factors support the conclusion that even this growing cash position does not present a PFIC risk:
First, the Company's annual capital expenditures are very significant — €680 million in FY2023, €750 million in FY2024, and €820 million in FY2025 — and are expected to continue at elevated levels as the Fab 3 construction project progresses. This demonstrates that cash reserves are being actively deployed into the business and supports the characterization of a substantial portion of cash as operational CapEx reserves rather than passive investment assets.
Second, the Company has reduced its total debt from €1,180 million to €890 million over the three-year period, and net debt has fallen to €150 million. The reduction in leverage, coupled with the growth in cash, reflects a deliberate strategy of building financial flexibility to fund the Fab 3 expansion and other growth investments rather than a passive accumulation of investment assets.
Third, the upcoming US IPO is expected to generate net proceeds of approximately $607,950,000 (approximately €564 million at an exchange rate of €1.00 = $1.078 as of January 10, 2026). The designated use of proceeds is entirely active in nature: $280 million for the Fab 3 SiC fabrication facility expansion in Dresden, $140 million for research and development of next-generation GaN power devices, $100 million for repayment of outstanding amounts under the revolving credit facility, and $87.95 million for general corporate purposes and working capital. Even if all IPO net proceeds were conservatively classified as passive assets in the quarter of receipt, total assets would also increase (by the same amount), and the passive asset ratio would remain well below 50%.
More specifically, if one were to model the post-IPO balance sheet as of the quarter-end immediately following the closing of the Offering, the calculation would be approximately as follows (assuming closing in Q2 2026):
Total assets post-IPO: €7,450 million + €564 million ≈ €8,014 million Passive assets post-IPO (conservatively, adding all net proceeds to cash): €780 million + €564 million ≈ €1,344 million Passive asset ratio post-IPO: €1,344 million ÷ €8,014 million ≈ 16.8%
Even under this highly conservative post-IPO scenario — which assumes no deployment of proceeds prior to the quarter-end measurement date — the passive asset ratio remains far below the 50% threshold. In practice, the rapid deployment of IPO proceeds into active uses (CapEx commitments for Fab 3, R&D program funding, and revolving credit facility repayment) would reduce the transient passive asset increase within one to two quarters following the closing.
Conclusion: The asset test is NOT satisfied for FY2025. The passive asset ratio of approximately 10.5% is far below the 50% statutory threshold.
F. Impact of Fair Market Value Measurement
Because Halcyon is publicly traded on the Frankfurt Stock Exchange, the fair market value method is the required methodology for the PFIC asset test. The analysis presented above uses IFRS book values as a proxy for fair market value, which is conservative for the following reasons:
As of January 10, 2026, Halcyon's market capitalization was approximately €8.6 billion, compared to a total book value of assets of approximately €7,450 million as of December 31, 2025. The excess of market capitalization over book value (approximately €1.15 billion) reflects the fair market value of the Company's active business franchise — including the value of its technology leadership in SiC and GaN power semiconductors, its established customer relationships with major automotive and industrial OEMs, its brand and reputation, and its workforce and organizational capabilities. All of these are active intangible assets that produce, or are associated with the production of, active manufacturing and sales income.
Under the fair market value method, these active intangible assets would be included in the denominator of the passive asset ratio (total assets at fair market value), thereby increasing the denominator without a corresponding increase in the numerator (passive assets, which consist primarily of cash and short-term investments that are already reported at or near fair market value). The net effect is a reduction in the passive asset ratio.
For illustrative purposes, if total assets were measured at fair market value using market capitalization as a reference (approximately €8.6 billion) rather than at IFRS book value (€7,450 million), the passive asset ratio for FY2025 would decline from approximately 10.5% to approximately:
€780 million ÷ €8,600 million ≈ 9.1%
This approach further confirms that the passive asset ratio is well below the 50% threshold under the required fair market value methodology.
G. Summary — Asset Test All Years
The following table summarizes the asset test analysis for each taxable year under review:
In all three taxable years, the passive asset ratio falls far below the 50% statutory threshold. The Company's asset base is overwhelmingly composed of active assets — fabrication facilities, manufacturing equipment, intangible property, inventory, and trade receivables — with cash and short-term investments representing only a modest fraction of total assets.
VI. Look-Through Rule Analysis (IRC § 1297(c))
Under Section 1297(c) of the Code, if a foreign corporation owns at least 25% of the value of the stock of another corporation, then, for purposes of determining whether such foreign corporation is a PFIC, such foreign corporation is treated as if it:
(A) held its proportionate share of the assets of such other corporation; and
(B) received directly its proportionate share of the income of such other corporation.
Halcyon owns 100% of the stock (or equivalent equity interests) of each of its five material subsidiaries. Accordingly, the look-through rule applies in full, and Halcyon is treated for PFIC purposes as owning 100% of the assets and receiving 100% of the income of each subsidiary. The look-through analysis eliminates the need to separately characterize the subsidiary equity interests themselves and instead requires a direct examination of the nature of each subsidiary's assets and income.
As detailed in Part II.C above, each of Halcyon's five material subsidiaries is an active operating company engaged in the active conduct of a trade or business:
Halcyon Semiconductor USA Inc. conducts sales, application engineering, and customer support activities for North American customers. These are active trade or business activities. The subsidiary's assets consist primarily of trade receivables, office and laboratory equipment, and leasehold improvements — all active assets. The subsidiary does not hold a disproportionate amount of cash or passive investments.
Halcyon Power Solutions GmbH operates the Company's SiC fabrication facilities in Dresden, Germany, including the operational Fab 2 and the Fab 3 facility currently under construction. This subsidiary is the primary manufacturing entity within the Halcyon group and holds the largest concentration of PP&E (fabrication equipment, cleanroom infrastructure, and construction-in-progress). All of its material assets are active manufacturing assets.
Halcyon Asia Pacific Pte. Ltd. serves as the Company's Asia-Pacific regional sales hub, conducting distribution, marketing, and technical sales support activities. Its assets consist primarily of trade receivables and working capital associated with active sales operations.
Halcyon Shanghai Semiconductor Co., Ltd. conducts China market sales and local engineering center operations. Like the APAC subsidiary, its assets are primarily trade receivables and operational working capital. The subsidiary does not hold disproportionate passive assets.
Halcyon Automotive Components s.r.o. operates module assembly and back-end testing facilities in Brno, Czech Republic. Its assets consist primarily of manufacturing and testing equipment, inventory (WIP and finished modules), and trade receivables — all active assets.
No subsidiary holds a disproportionate amount of passive assets relative to its total asset base. The passive assets at the subsidiary level are limited to modest cash balances maintained for operational working capital purposes, which are consistent with the active nature of each subsidiary's business.
Inter-company dividends and royalties paid between subsidiaries and the parent entity are disregarded for purposes of the PFIC analysis under the look-through rule. Instead, the income at each subsidiary level is characterized based on its nature — and, as demonstrated above, the income of each subsidiary is overwhelmingly active trade or business income.
Conclusion. The application of the look-through rule under Section 1297(c) does not change the overall PFIC analysis. On a consolidated look-through basis, all subsidiary assets and income are predominantly active in character, and the inclusion of subsidiary-level data in the consolidated analysis confirms the non-PFIC determination reached under both the income test and the asset test.
VII. Special Considerations
A. Post-IPO Cash Balances
As discussed in Part V.E above, the completion of the US IPO is expected to result in net proceeds to Halcyon of approximately $607,950,000 (assuming gross proceeds of $900,000,000, underwriting discounts and commissions of approximately $63,000,000, and estimated offering expenses of approximately $229,050,000). These net proceeds, when converted to euros at the January 10, 2026 exchange rate (€1.00 = $1.078), are approximately €564 million.
The receipt of IPO proceeds will temporarily increase Halcyon's cash holdings. However, the designated use of proceeds is entirely active in character:
• $280 million for the Fab 3 SiC fabrication facility expansion in Dresden, Germany (active CapEx);
• $140 million for research and development of next-generation GaN power devices (active R&D);
• $100 million for repayment of outstanding amounts under the Company's revolving credit facility (debt repayment, which reduces both passive assets (cash) and liabilities); and
• $87.95 million for general corporate purposes and working capital (active operational purposes).
Even if all IPO net proceeds were conservatively classified as passive assets in the quarter of receipt (prior to any deployment), total passive assets would remain well below 50% of total assets, as demonstrated in the post-IPO scenario analysis in Part V.E above (approximately 16.8% passive asset ratio under the most conservative assumptions). The rapid deployment of proceeds into active uses — particularly the Fab 3 CapEx commitment, which is an ongoing construction project with immediate capital call requirements, and the revolving credit facility repayment, which can be executed immediately upon receipt of proceeds — will further reduce any transient increase in the passive asset ratio.
We recommend that Halcyon's management team and finance function develop and document a use-of-proceeds deployment timeline to ensure that temporary cash balances do not create PFIC risk in any particular quarter. In particular, we recommend that the timing of the revolving credit facility repayment be prioritized in the quarter of the Offering closing, as this will simultaneously reduce both cash (passive asset) and debt, with a net favorable effect on the passive asset ratio.
B. Fab 3 Construction-in-Progress
Halcyon Power Solutions GmbH is currently constructing Fab 3, a new SiC fabrication facility in Dresden, Germany. This is a major capital project with a total estimated cost of approximately €1.2 billion over the 2024–2027 construction period. As of December 31, 2025, a significant amount of capital had already been invested in Fab 3, and the corresponding construction-in-progress ("CIP") assets are reflected in the Company's consolidated fixed asset registers.
For PFIC purposes, assets under construction that are clearly related to the active conduct of a trade or business should be classified as active assets, not passive assets, even though they are not yet generating revenue or producing goods. The CIP assets associated with Fab 3 — including the building structure, cleanroom installations, fabrication equipment on order or in installation, and related infrastructure — are all directly attributable to the Company's active semiconductor manufacturing business. Upon completion, Fab 3 will be used to fabricate SiC power semiconductor devices for sale to automotive and industrial customers, generating active revenue.
We have classified all Fab 3 CIP assets as active assets for purposes of this analysis. This treatment is consistent with the purpose and intent of the PFIC rules, which distinguish between assets used in (or held for use in) an active trade or business and assets held for the production of passive investment income. CIP assets earmarked for an active fabrication facility fall squarely within the former category.
C. Halcyon Employee Stock Ownership Trust (ESOT)
Halcyon maintains an Employee Stock Ownership Trust (the "ESOT") for the benefit of eligible employees. The ESOT currently holds 6,665,000 ordinary shares of the Company, representing approximately 3.1% of the Company's outstanding ordinary shares.
For purposes of the PFIC analysis, the assets held by the ESOT are not attributed to Halcyon. The ESOT is a separate legal entity — a trust established under German law for employee benefit purposes — and its assets are segregated from the Company's corporate assets. The shares held by the ESOT are not "assets" of Halcyon for purposes of Section 1297(a)(2), and any income earned by the ESOT (including dividends received on the shares it holds) is not income of Halcyon for purposes of Section 1297(a)(1). Accordingly, the ESOT does not affect the PFIC analysis in any respect.
D. Currency and Hedging
Halcyon engages in foreign currency hedging activities as a routine component of its active semiconductor business operations. The Company's functional currency is the euro, but it generates significant revenues and incurs significant costs in other currencies, including the US dollar ("USD"), Chinese yuan ("CNY"), and Czech koruna ("CZK"). The Company manages its foreign currency exposures through forward contracts and other hedging instruments, primarily EUR/USD, EUR/CNY, and EUR/CZK hedges on trade receivables, trade payables, and anticipated future transactions.
Gains or losses on hedging instruments that are directly related to, and integrated with, the Company's active business operations are generally not treated as passive income for PFIC purposes, provided that such transactions qualify as "bona fide hedging transactions" under the exception set forth in Section 954(c)(1)(D) of the Code and the applicable Treasury Regulations. A bona fide hedging transaction, within the meaning of Treasury Regulation § 1.954-2(a)(4)(ii), is a transaction that is entered into in the normal course of the taxpayer's business primarily to manage the risk of price changes or currency fluctuations with respect to ordinary property or obligations, and that is clearly identified as a hedging transaction in the taxpayer's books and records.
Based on our review of Halcyon's hedging program documentation, including the Company's hedging policy memoranda and ISDA master agreements, we believe that the Company's foreign currency hedging activities satisfy the requirements for the bona fide hedging transaction exception. The hedging instruments used by the Company are directly linked to identified trade receivables, trade payables, and forecasted active business transactions, and are entered into for the purpose of managing currency risk inherent in the Company's active semiconductor business. Accordingly, gains and losses on these hedging transactions should be excluded from passive income for PFIC purposes.
For reference, the EUR/USD exchange rate as of January 10, 2026 was €1.00 = $1.078.
E. Changes in Business Mix or Asset Composition
As noted throughout this memorandum, PFIC status is determined annually on a year-by-year basis. The analysis and conclusions set forth herein are based on the Company's actual income and asset composition for FY2023 through FY2025 and the Company's current business profile. If Halcyon were to experience significant changes in its business mix or asset composition in future taxable years, the PFIC determination could change. Scenarios that could potentially affect the analysis include:
(i) A substantial reduction in active semiconductor revenue (for example, due to a severe industry downturn or loss of major customer accounts) without a proportionate reduction in passive income sources;
(ii) A large increase in passive investment assets (for example, if the Company were to accumulate significant cash reserves beyond operational needs and invest such cash in passive financial instruments);
(iii) Significant asset sales or divestitures resulting in the receipt of large cash proceeds that are not promptly redeployed into active business assets;
(iv) An acquisition of a company or business line that holds a disproportionate amount of passive assets or generates significant passive income; or
(v) A fundamental change in the Company's business model away from active manufacturing and toward a licensing, royalty, or investment-holding model.
Based on the Company's current trajectory — characterized by growing revenue, increasing capital expenditures, declining leverage, and continued investment in active fabrication capacity and R&D — PFIC status appears increasingly unlikely in the near term. The Company's revenue compound annual growth rate ("CAGR") of approximately 9.0% over the FY2023–FY2025 period, combined with expanding EBITDA margins and substantial ongoing CapEx commitments, reflects a robust and growing active semiconductor business.
Nevertheless, annual monitoring of PFIC status remains essential, and we recommend that Halcyon's finance team conduct an annual PFIC assessment as part of its year-end tax reporting process.
VIII. Consequences if Halcyon Were Classified as a PFIC
Although we have concluded that Halcyon is not a PFIC for FY2023, FY2024, or FY2025, the prospectus must describe the potential consequences that would apply if the Company were classified as a PFIC in any taxable year. This Part VIII provides a summary of the applicable consequences for purposes of informing the prospectus disclosure. This summary is intended to support the drafting of the risk factors and

MEMORANDUM

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