1032-00006 · Halcyon Semiconductor Inc · APA Application

cover-letter-apa-submission-irs.docx DOCUMENT M&A / Corporate

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PRIVILEGED & CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Attorneys at Law

599 Lexington Avenue, 38th Floor New York, New York 10022

Telephone: (212) 848-6100 Facsimile: (212) 848-6199 www.calderwoodharkness.com

July 7, 2025

Director, Advance Pricing and Mutual Agreement Program (APMA) Large Business & International Division Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC 20224

Re: Bilateral Advance Pricing Agreement Application — Halcyon Semiconductor Inc. (EIN: 84-2917630) and Halcyon Semiconductor AG (German Steuernummer: 203/118/04527); Rev. Proc. 2015-41; C&H Matter No. 1032-00006

Dear Director:

I. Purpose and Authorization

Calderwood & Harkness LLP ("C&H" or the "Firm") respectfully submits this letter and the accompanying enclosed materials on behalf of our client, Halcyon Semiconductor Inc. ("HSI"), a corporation organized under the laws of the State of Delaware (EIN: 84-2917630), and HSI's parent company, Halcyon Semiconductor AG ("HSAG"), an Aktiengesellschaft organized and existing under the laws of the Federal Republic of Germany (Steuernummer: 203/118/04527; VAT Identification Number: DE 814 723 956), with its registered office (Sitz der Gesellschaft) at Halcyon-Allee 12, 01099 Dresden, Saxony, Germany.

HSI maintains its principal office and place of business at 8700 Parmer Lane, Building 4, Austin, Texas 78729. HSI is incorporated in the State of Delaware under Delaware Secretary of State File Number 7341825, with its registered agent at c/o Capitol Registered Agents LLC, 1209 Orange Street, Wilmington, Delaware 19801. HSI is a wholly owned subsidiary of HSAG and files U.S. federal income tax returns as a calendar-year taxpayer.

The Firm is authorized to represent HSI before the Internal Revenue Service in connection with this bilateral Advance Pricing Agreement ("APA") application pursuant to the enclosed IRS Form 2848 (Power of Attorney and Declaration of Representative), which authorizes the following individuals of Calderwood & Harkness LLP to act as HSI's representatives before the IRS in connection with this bilateral APA application for tax years 2022 through 2029, with respect to matters arising under Section 482 of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"):

• Leonard Cross, Partner, Tax — CAF No. pending assignment

• Sylvia Hartwell, Partner, Tax — CAF No. pending assignment

• Leila Nazari, Senior Associate, Tax — CAF No. pending assignment

Each of the above-named individuals is admitted to practice before the IRS, and their respective designations as representatives are set forth in the enclosed Form 2848. The original, executed Form 2848 is enclosed as Enclosure 6 hereto. We respectfully request that all communications relating to this application be directed to Leonard Cross at the contact information set forth at the conclusion of this letter.

II. Description of the Application

By this submission, HSI formally files an application for a bilateral Advance Pricing Agreement pursuant to Revenue Procedure 2015-41, 2015-35 I.R.B. 263, as modified and supplemented (the "Revenue Procedure"). This application requests that the United States competent authority, acting through the Advance Pricing and Mutual Agreement Program of the Large Business & International Division of the Internal Revenue Service, negotiate and enter into a bilateral APA with the competent authority of the Federal Republic of Germany — the Bundeszentralamt für Steuern ("BZSt"), located in Bonn, Germany — under Article 25 (Mutual Agreement Procedure) of the Convention between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed at Berlin on June 29, 2006, and entered into force on December 28, 2007 (the "US-Germany Income Tax Treaty" or the "Treaty").

The bilateral APA, if concluded, would establish the appropriate transfer pricing methodology, including the selection of the best method, tested party, profit level indicator, and arm's-length range (or point), for the covered intercompany transactions between HSAG and HSI described in Section III below, thereby providing certainty to both HSI and HSAG with respect to their respective transfer pricing positions in the United States and Germany and eliminating the risk of double taxation with respect to the covered transactions during the APA term.

III. Covered Transactions

The APA application identifies three principal categories of controlled transactions between HSAG and HSI that are the subject of this bilateral APA request. Each category of transaction is described below, together with a summary of the applicable intercompany agreements and the most recently available financial data for fiscal year 2024.

A. Tangible Goods — Wafer and Die Sales

HSAG manufactures advanced semiconductor wafers and singulated die at its fabrication facilities (Halbleiterwerk) located in Dresden and Chemnitz, Saxony, Germany. These facilities represent HSAG's primary global manufacturing operations and include both mature and leading-edge process nodes. Under a Master Intercompany Supply Agreement between HSAG and HSI, originally effective January 1, 2019, and subsequently amended effective July 1, 2022 (the "Supply Agreement"), HSAG sells semiconductor wafers and singulated die to HSI for resale and distribution in the Americas. HSI acts as the principal distributor of HSAG products in North, Central, and South America, performing sales, marketing, warehousing, logistics, and limited post-sale technical support functions.

For HSI's fiscal year ended December 31, 2024, intercompany goods transferred from HSAG to HSI under the Supply Agreement totaled approximately €987,600,000 (approximately $1,076,000,000 at the average 2024 EUR/USD exchange rate of 1.0896, as published by the European Central Bank).

B. Royalties — Intellectual Property License

HSI makes royalty payments to HSAG pursuant to an intellectual Property License Agreement between HSAG (as licensor) and HSI (as licensee), effective January 1, 2019 (the "IP License Agreement"). Under the IP License Agreement, HSAG grants HSI a non-exclusive, non-transferable license to use certain semiconductor process technology, proprietary design libraries, electronic design automation tools and methodologies, and related intangible property in connection with HSI's sales and marketing activities and its provision of design-support services to customers in the Americas.

The royalty is computed as a 6.0% running royalty on HSI's net revenues attributable to the licensed intellectual property (i.e., IP-attributable revenues). For HSI's fiscal year ended December 31, 2024, royalty payments from HSI to HSAG under the IP License Agreement totaled approximately €68,400,000 (approximately $70,500,000).

C. Cost-Sharing Contributions — Qualified R&D Cost Sharing Arrangement

HSI participates as a cost-sharing participant in a Qualified Cost Sharing Arrangement ("CSA") with HSAG, effective July 15, 2018 (the "CSA Agreement"), for the joint development of next-generation semiconductor process technology, including 2nm and sub-2nm node research and development. The CSA is structured as a qualified cost sharing arrangement within the meaning of Treasury Regulation § 1.482-7 and is intended to satisfy the requirements thereof.

Under the CSA, HSI's anticipated benefit share — representing its reasonably anticipated proportion of the benefits to be derived from the cost-shared intangibles — is 22.5%, with the balance of 77.5% allocated to HSAG. The anticipated benefit share is subject to triennial review and potential adjustment based on updated benefit projections.

For fiscal year 2024, total qualified R&D costs subject to the CSA were approximately €998,200,000. HSI's 22.5% share of such costs was approximately €224,600,000 (approximately $231,300,000).

D. Aggregate Intercompany Flows

In the aggregate, intercompany flows between HSAG and HSI for fiscal year 2024 (encompassing the tangible goods, royalty, and cost-sharing categories described above) totaled approximately €1,280,600,000 (approximately €1.28 billion). The magnitude and complexity of these intercompany transactions underscore the importance of achieving bilateral certainty through the APA process.

IV. Proposed Transfer Pricing Methods

The APA application sets forth proposed transfer pricing methods for each of the three categories of covered transactions, as summarized below. Full detail is provided in the enclosed APA Application Supporting Narrative (Enclosure 2), Economic Analysis Appendix (Enclosure 3), and Legal Analysis Memorandum (Enclosure 4).

A. Tangible Goods (Wafer/Die Sales) — TNMM / CPM

For the intercompany sales of semiconductor wafers and die from HSAG to HSI, the applicant proposes the Transactional Net Margin Method ("TNMM") as described in the OECD Transfer Pricing Guidelines (2022 ed.), Chapter II, which corresponds to the Comparable Profits Method ("CPM") under Treasury Regulation § 1.482-5.

HSI is proposed as the tested party, as it is the least complex entity in the controlled transaction chain. HSI performs limited-risk distribution, sales, marketing, and logistics functions and does not own significant unique intangible property. The selected profit level indicator ("PLI") is HSI's operating margin on net resales (i.e., operating income divided by net revenue).

A benchmarking study, performed with the assistance of Meridian Economics GmbH (as described below), identified seventeen (17) comparable North American semiconductor distributors over the five-year period of fiscal years 2020 through 2024. After application of appropriate comparability adjustments (including working capital adjustments), the resulting arm's-length interquartile range ("IQR") of operating margins is 2.8% to 6.1%, with a median of 4.4%. HSI's fiscal year 2024 operating margin of 4.80% falls within this interquartile range.

B. Royalties (IP License) — CUT Method

For the royalty payments from HSI to HSAG under the IP License Agreement, the applicant proposes the Comparable Uncontrolled Transaction ("CUT") method under Treasury Regulation § 1.482-4(c), corroborated by a residual profit split analysis as a confirmatory method.

The CUT analysis identified comparable uncontrolled license agreements involving semiconductor process technology and design library intangibles. The resulting arm's-length interquartile range of royalty rates is 3.5% to 8.2%, with a median of 5.6%. HSAG's contractual royalty rate of 6.0% falls within the IQR, slightly above the median, which is consistent with the scope, value, and exclusivity characteristics of the licensed intangibles. The residual profit split analysis, performed on a confirmatory basis, corroborates the arm's-length nature of the 6.0% rate.

C. Cost-Sharing Contributions — Income Method

For contributions under the Qualified Cost Sharing Arrangement, the applicant proposes the income method prescribed by Treasury Regulation § 1.482-7(g)(4) for purposes of measuring reasonably anticipated benefits. Under this method, HSI's anticipated benefit share of 22.5% is derived from projections of the discounted present value of future income attributable to the cost-shared intangibles, allocated based on the reasonably anticipated benefits accruing to each controlled participant. The anticipated benefit share is subject to triennial review in accordance with the CSA Agreement and applicable regulatory guidance.

V. Proposed APA Term and Rollback Request

The application proposes the following temporal scope for the bilateral APA:

Prospective APA Term: Five (5) tax years — January 1, 2025, through December 31, 2029.

Rollback Request: Three (3) prior tax years — January 1, 2022, through December 31, 2024.

Total Covered Period (if rollback is granted): Eight (8) tax years — January 1, 2022, through December 31, 2029.

Both HSI and HSAG report on a calendar fiscal year-end of December 31. The rollback request is made in accordance with Section 8.02 of Rev. Proc. 2015-41. HSI's federal income tax returns for the rollback years (2022, 2023, and 2024) have been timely filed, and to the best of HSI's knowledge, the transfer pricing positions reported on those returns are consistent with the methodologies proposed in this APA application. HSI is not currently under examination by the IRS for any of the proposed rollback tax years, and no Notices of Deficiency or Revenue Agent Reports with respect to transfer pricing adjustments have been issued for those years.

VI. Pre-Filing Conference

Prior to the submission of this formal APA application, a pre-filing memorandum was submitted anonymously to the IRS APMA on April 14, 2025, in accordance with Section 4 of the Revenue Procedure. A pre-filing conference was subsequently held on May 19, 2025, at the IRS offices in Washington, D.C. Representatives of the APMA program participated in the conference, which addressed the proposed covered transactions, transfer pricing methods, the anticipated scope of the bilateral APA, and the rollback request.

This formal application follows the pre-filing conference and has been prepared in a manner that incorporates the feedback and guidance received from the APMA team during that meeting. In particular, the application narrative and economic analysis have been expanded to include additional discussion of the comparability analysis for the tangible goods transaction, as suggested by the APMA team, and to address certain questions raised during the pre-filing conference regarding the delineation of the cost-sharing arrangement from the licensed intangibles.

VII. German Competent Authority Coordination

Consistent with the bilateral nature of this APA request, a parallel German APA application package is being prepared by HSAG's German tax counsel, Kettner Pflüger Rechtsanwälte (Dr. Tobias Kettner, Partner, Tax; Bockenheimer Landstraße 72, 60323 Frankfurt am Main, Germany), for submission to the Bundeszentralamt für Steuern ("BZSt") in Bonn, Germany. The German application is currently being finalized and is targeted for submission on or about August 15, 2025.

The German application will be submitted pursuant to Article 25 of the US-Germany Income Tax Treaty and in accordance with applicable German procedural requirements, including § 178a of the German Abgabenordnung ("AO") and the relevant administrative guidance of the German Federal Ministry of Finance (Bundesministerium der Finanzen). HSI and HSAG, through their respective counsel, are coordinating the U.S. and German applications to ensure consistency in the description of the covered transactions, the proposed transfer pricing methods, and the supporting economic analyses.

We respectfully request that the APMA program coordinate with the BZSt upon receipt of the German application, in accordance with the mutual agreement procedure provisions of Article 25 of the Treaty and the established bilateral working procedures between the U.S. and German competent authorities.

VIII. Enclosures

The following materials are enclosed with this letter and collectively constitute the APA application submitted on behalf of HSI:

1. IRS Form 14661 — Completed APA Application Form for Halcyon Semiconductor Inc. (EIN: 84-2917630) and Halcyon Semiconductor AG (Steuernummer: 203/118/04527), executed by an authorized officer of HSI.

2. APA Application Supporting Narrative — Comprehensive description of the applicants (HSI and HSAG), their business operations and organizational structure, the covered controlled transactions, the proposed transfer pricing methods for each category of transaction, the proposed APA term, and the rollback request. The narrative addresses each of the items specified in Section 6 of Rev. Proc. 2015-41.

3. Economic Analysis Appendix — Detailed benchmarking studies, including the CPM/TNMM analysis for the tangible goods transactions, the CUT analysis and corroborative residual profit split analysis for the royalty transactions, and the income-method anticipated benefit share analysis for the cost-sharing arrangement. The appendix includes full documentation of comparability adjustments, search strategies, database parameters, and statistical results. The economic analysis was prepared with the assistance of Meridian Economics GmbH (Dr. Annika Breitner, Managing Director; Leopoldstraße 145, 80804 Munich, Germany), an independent transfer pricing economics firm.

4. Legal Analysis Memorandum — Analysis of the legal basis for the proposed transfer pricing methods under IRC § 482, Treasury Regulations §§ 1.482-1 through 1.482-9, the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 ed.), and Articles 9 (Associated Enterprises) and 25 (Mutual Agreement Procedure) of the US-Germany Income Tax Treaty. The memorandum also addresses the penalty protection standards under IRC §§ 6662(e) and 6662(h) and Treasury Regulation § 1.6662-6.

5. Financial Data Appendix — Segmented financial data for HSI and HSAG, intercompany transaction schedules, and reconciliations to audited consolidated financial statements for fiscal years 2020 through 2024. Financial statements have been audited by Gresham Whitfield LLP, independent registered public accounting firm. Key financial data points for FY 2024 are summarized as follows:

Halcyon Semiconductor Inc. (HSI) — FY 2024:

• Net revenue: $4,120,000,000

• Cost of goods sold (inclusive of intercompany purchases): $3,380,000,000

• Gross profit: $740,000,000 (17.96% gross margin)

• Operating expenses: $542,200,000

• Operating income: $197,800,000 (4.80% operating margin)

Halcyon Semiconductor AG (HSAG) — FY 2024 Consolidated:

• Revenue: €8,740,000,000

• EBITDA: €2,620,000,000 (30.0% EBITDA margin)

• EBIT: €1,570,000,000 (18.0% EBIT margin)

• Total R&D expenditures: €1,420,000,000

• Qualified CSA R&D costs: €998,200,000

• Global employees: approximately 22,400 (of which approximately 14,600 in Germany)

• HSAG is publicly listed on the Frankfurt Stock Exchange (XETRA); ISIN: DE000HSA0017; WKN: HSA001

6. IRS Form 2848 — Power of Attorney and Declaration of Representative — Authorizing Leonard Cross, Sylvia Hartwell, and Leila Nazari of Calderwood & Harkness LLP to represent HSI before the IRS for tax years 2022 through 2029 with respect to IRC § 482 transfer pricing matters. Executed by an authorized officer of HSI.

7. User Fee Payment — Check No. 108427, dated July 7, 2025, in the amount of $113,500.00, payable to the order of the United States Treasury, representing the applicable large-case APA user fee for bilateral applications as of the date of this submission, in accordance with Section 4.12 of Rev. Proc. 2015-41 (as updated by subsequent guidance).

IX. Applicable Legal Authorities

The APA application is submitted in reliance upon, and the proposed transfer pricing methods are consistent with, the following legal authorities:

• Internal Revenue Code §§ 482, 6662(e), and 6662(h)

• Treasury Regulations §§ 1.482-1 through 1.482-9

• Treasury Regulation § 1.6662-6

• Revenue Procedure 2015-41, 2015-35 I.R.B. 263

• OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 ed.)

• Convention between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed June 29, 2006, Articles 9 (Associated Enterprises) and 25 (Mutual Agreement Procedure)

• German transfer pricing provisions: § 1 Außensteuergesetz ("AStG"); §§ 90(3), 162(3)–(4) Abgabenordnung ("AO"); Gewinnabgrenzungsaufzeichnungsverordnung ("GAufzV")

X. Contact Information and Availability

All communications relating to this APA application should be directed to:

Leonard Cross Partner, Tax Calderwood & Harkness LLP 599 Lexington Avenue, 38th Floor New York, New York 10022 Telephone: (212) 848-6247

Email: leonard.cross@calderwoodharkness.com

Mr. Cross, together with Sylvia Hartwell and Leila Nazari, are available to meet with the APMA team at the program's earliest convenience for purposes of scheduling and conducting an opening conference. We are prepared to accommodate the APMA team's preferred scheduling parameters and can make ourselves available on short notice.

In addition, the following client representatives are available to participate in discussions and to provide information as may be requested by the APMA team:

Priya Raghavan Vice President, Tax Halcyon Semiconductor Inc. 8700 Parmer Lane, Building 4 Austin, Texas 78729 Telephone: (512) 394-7810

Email: priya.raghavan@halcyonsemi.com

Dr. Erwin Fassbinder Senior Vice President, Group Tax Halcyon Semiconductor AG Halcyon-Allee 12 01099 Dresden, Saxony, Germany Telephone: +49 (351) 462-3300

Email: erwin.fassbinder@halcyon-semi.de

XI. Closing

We express our sincere appreciation for the APMA program's consideration of this bilateral APA application. HSI and HSAG are firmly committed to a cooperative and transparent bilateral process and recognize the significant benefits that the APA program provides to taxpayers and tax administrations alike in achieving certainty and preventing double taxation.

HSI and HSAG will fully comply with all information requests and procedural requirements under Rev. Proc. 2015-41 and will cooperate with both the U.S. and German competent authorities throughout the negotiation process. We are prepared to provide any additional information, documentation, or analysis that the APMA team may require in connection with its review of this application.

We look forward to working with the APMA team and stand ready to assist in any manner that will facilitate the efficient and timely processing of this application.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Leonard Cross Partner, Tax Calderwood & Harkness LLP 599 Lexington Avenue, 38th Floor New York, New York 10022

cc:

Priya Raghavan, Vice President, Tax, Halcyon Semiconductor Inc., 8700 Parmer Lane, Building 4, Austin, TX 78729

Dr. Erwin Fassbinder, SVP, Group Tax, Halcyon Semiconductor AG, Halcyon-Allee 12, 01099 Dresden, Germany

Sylvia Hartwell, Partner, Tax, Calderwood & Harkness LLP, 599 Lexington Avenue, 38th Floor, New York, NY 10022

Leila Nazari, Senior Associate, Tax, Calderwood & Harkness LLP, 599 Lexington Avenue, 38th Floor, New York, NY 10022

Dr. Tobias Kettner, Partner, Tax, Kettner Pflüger Rechtsanwälte, Bockenheimer Landstraße 72, 60323 Frankfurt am Main, Germany

Enclosures (7)

PRIVILEGED & CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Attorneys at Law
599 Lexington Avenue, 38th Floor New York, New York 10022
Telephone: (212) 848-6100 Facsimile: (212) 848-6199 www.calderwoodharkness.com
July 7, 2025
Director, Advance Pricing and Mutual Agreement Program (APMA) Large Business & International Division Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC 20224
Re: Bilateral Advance Pricing Agreement Application — Halcyon Semiconductor Inc. (EIN: 84-2917630) and Halcyon Semiconductor AG (German Steuernummer: 203/118/04527); Rev. Proc. 2015-41; C&H Matter No. 1032-00006
Dear Director:
I. Purpose and Authorization
Calderwood & Harkness LLP ("C&H" or the "Firm") respectfully submits this letter and the accompanying enclosed materials on behalf of our client, Halcyon Semiconductor Inc. ("HSI"), a corporation organized under the laws of the State of Delaware (EIN: 84-2917630), and HSI's parent company, Halcyon Semiconductor AG ("HSAG"), an Aktiengesellschaft organized and existing under the laws of the Federal Republic of Germany (Steuernummer: 203/118/04527; VAT Identification Number: DE 814 723 956), with its registered office (Sitz der Gesellschaft) at Halcyon-Allee 12, 01099 Dresden, Saxony, Germany.
HSI maintains its principal office and place of business at 8700 Parmer Lane, Building 4, Austin, Texas 78729. HSI is incorporated in the State of Delaware under Delaware Secretary of State File Number 7341825, with its registered agent at c/o Capitol Registered Agents LLC, 1209 Orange Street, Wilmington, Delaware 19801. HSI is a wholly owned subsidiary of HSAG and files U.S. federal income tax returns as a calendar-year taxpayer.
The Firm is authorized to represent HSI before the Internal Revenue Service in connection with this bilateral Advance Pricing Agreement ("APA") application pursuant to the enclosed IRS Form 2848 (Power of Attorney and Declaration of Representative), which authorizes the following individuals of Calderwood & Harkness LLP to act as HSI's representatives before the IRS in connection with this bilateral APA application for tax years 2022 through 2029, with respect to matters arising under Section 482 of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"):
• Leonard Cross, Partner, Tax — CAF No. pending assignment
• Sylvia Hartwell, Partner, Tax — CAF No. pending assignment
• Leila Nazari, Senior Associate, Tax — CAF No. pending assignment
Each of the above-named individuals is admitted to practice before the IRS, and their respective designations as representatives are set forth in the enclosed Form 2848. The original, executed Form 2848 is enclosed as Enclosure 6 hereto. We respectfully request that all communications relating to this application be directed to Leonard Cross at the contact information set forth at the conclusion of this letter.
II. Description of the Application
By this submission, HSI formally files an application for a bilateral Advance Pricing Agreement pursuant to Revenue Procedure 2015-41, 2015-35 I.R.B. 263, as modified and supplemented (the "Revenue Procedure"). This application requests that the United States competent authority, acting through the Advance Pricing and Mutual Agreement Program of the Large Business & International Division of the Internal Revenue Service, negotiate and enter into a bilateral APA with the competent authority of the Federal Republic of Germany — the Bundeszentralamt für Steuern ("BZSt"), located in Bonn, Germany — under Article 25 (Mutual Agreement Procedure) of the Convention between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed at Berlin on June 29, 2006, and entered into force on December 28, 2007 (the "US-Germany Income Tax Treaty" or the "Treaty").
The bilateral APA, if concluded, would establish the appropriate transfer pricing methodology, including the selection of the best method, tested party, profit level indicator, and arm's-length range (or point), for the covered intercompany transactions between HSAG and HSI described in Section III below, thereby providing certainty to both HSI and HSAG with respect to their respective transfer pricing positions in the United States and Germany and eliminating the risk of double taxation with respect to the covered transactions during the APA term.
III. Covered Transactions
The APA application identifies three principal categories of controlled transactions between HSAG and HSI that are the subject of this bilateral APA request. Each category of transaction is described below, together with a summary of the applicable intercompany agreements and the most recently available financial data for fiscal year 2024.
A. Tangible Goods — Wafer and Die Sales
HSAG manufactures advanced semiconductor wafers and singulated die at its fabrication facilities (Halbleiterwerk) located in Dresden and Chemnitz, Saxony, Germany. These facilities represent HSAG's primary global manufacturing operations and include both mature and leading-edge process nodes. Under a Master Intercompany Supply Agreement between HSAG and HSI, originally effective January 1, 2019, and subsequently amended effective July 1, 2022 (the "Supply Agreement"), HSAG sells semiconductor wafers and singulated die to HSI for resale and distribution in the Americas. HSI acts as the principal distributor of HSAG products in North, Central, and South America, performing sales, marketing, warehousing, logistics, and limited post-sale technical support functions.
For HSI's fiscal year ended December 31, 2024, intercompany goods transferred from HSAG to HSI under the Supply Agreement totaled approximately €987,600,000 (approximately $1,076,000,000 at the average 2024 EUR/USD exchange rate of 1.0896, as published by the European Central Bank).
B. Royalties — Intellectual Property License
HSI makes royalty payments to HSAG pursuant to an intellectual Property License Agreement between HSAG (as licensor) and HSI (as licensee), effective January 1, 2019 (the "IP License Agreement"). Under the IP License Agreement, HSAG grants HSI a non-exclusive, non-transferable license to use certain semiconductor process technology, proprietary design libraries, electronic design automation tools and methodologies, and related intangible property in connection with HSI's sales and marketing activities and its provision of design-support services to customers in the Americas.
The royalty is computed as a 6.0% running royalty on HSI's net revenues attributable to the licensed intellectual property (i.e., IP-attributable revenues). For HSI's fiscal year ended December 31, 2024, royalty payments from HSI to HSAG under the IP License Agreement totaled approximately €68,400,000 (approximately $70,500,000).
C. Cost-Sharing Contributions — Qualified R&D Cost Sharing Arrangement
HSI participates as a cost-sharing participant in a Qualified Cost Sharing Arrangement ("CSA") with HSAG, effective July 15, 2018 (the "CSA Agreement"), for the joint development of next-generation semiconductor process technology, including 2nm and sub-2nm node research and development. The CSA is structured as a qualified cost sharing arrangement within the meaning of Treasury Regulation § 1.482-7 and is intended to satisfy the requirements thereof.
Under the CSA, HSI's anticipated benefit share — representing its reasonably anticipated proportion of the benefits to be derived from the cost-shared intangibles — is 22.5%, with the balance of 77.5% allocated to HSAG. The anticipated benefit share is subject to triennial review and potential adjustment based on updated benefit projections.
For fiscal year 2024, total qualified R&D costs subject to the CSA were approximately €998,200,000. HSI's 22.5% share of such costs was approximately €224,600,000 (approximately $231,300,000).
D. Aggregate Intercompany Flows
In the aggregate, intercompany flows between HSAG and HSI for fiscal year 2024 (encompassing the tangible goods, royalty, and cost-sharing categories described above) totaled approximately €1,280,600,000 (approximately €1.28 billion). The magnitude and complexity of these intercompany transactions underscore the importance of achieving bilateral certainty through the APA process.
IV. Proposed Transfer Pricing Methods
The APA application sets forth proposed transfer pricing methods for each of the three categories of covered transactions, as summarized below. Full detail is provided in the enclosed APA Application Supporting Narrative (Enclosure 2), Economic Analysis Appendix (Enclosure 3), and Legal Analysis Memorandum (Enclosure 4).
A. Tangible Goods (Wafer/Die Sales) — TNMM / CPM
For the intercompany sales of semiconductor wafers and die from HSAG to HSI, the applicant proposes the Transactional Net Margin Method ("TNMM") as described in the OECD Transfer Pricing Guidelines (2022 ed.), Chapter II, which corresponds to the Comparable Profits Method ("CPM") under Treasury Regulation § 1.482-5.
HSI is proposed as the tested party, as it is the least complex entity in the controlled transaction chain. HSI performs limited-risk distribution, sales, marketing, and logistics functions and does not own significant unique intangible property. The selected profit level indicator ("PLI") is HSI's operating margin on net resales (i.e., operating income divided by net revenue).
A benchmarking study, performed with the assistance of Meridian Economics GmbH (as described below), identified seventeen (17) comparable North American semiconductor distributors over the five-year period of fiscal years 2020 through 2024. After application of appropriate comparability adjustments (including working capital adjustments), the resulting arm's-length interquartile range ("IQR") of operating margins is 2.8% to 6.1%, with a median of 4.4%. HSI's fiscal year 2024 operating margin of 4.80% falls within this interquartile range.
B. Royalties (IP License) — CUT Method
For the royalty payments from HSI to HSAG under the IP License Agreement, the applicant proposes the Comparable Uncontrolled Transaction ("CUT") method under Treasury Regulation § 1.482-4(c), corroborated by a residual profit split analysis as a confirmatory method.
The CUT analysis identified comparable uncontrolled license agreements involving semiconductor process technology and design library intangibles. The resulting arm's-length interquartile range of royalty rates is 3.5% to 8.2%, with a median of 5.6%. HSAG's contractual royalty rate of 6.0% falls within the IQR, slightly above the median, which is consistent with the scope, value, and exclusivity characteristics of the licensed intangibles. The residual profit split analysis, performed on a confirmatory basis, corroborates the arm's-length nature of the 6.0% rate.
C. Cost-Sharing Contributions — Income Method
For contributions under the Qualified Cost Sharing Arrangement, the applicant proposes the income method prescribed by Treasury Regulation § 1.482-7(g)(4) for purposes of measuring reasonably anticipated benefits. Under this method, HSI's anticipated benefit share of 22.5% is derived from projections of the discounted present value of future income attributable to the cost-shared intangibles, allocated based on the reasonably anticipated benefits accruing to each controlled participant. The anticipated benefit share is subject to triennial review in accordance with the CSA Agreement and applicable regulatory guidance.
V. Proposed APA Term and Rollback Request
The application proposes the following temporal scope for the bilateral APA:
Prospective APA Term: Five (5) tax years — January 1, 2025, through December 31, 2029.
Rollback Request: Three (3) prior tax years — January 1, 2022, through December 31, 2024.
Total Covered Period (if rollback is granted): Eight (8) tax years — January 1, 2022, through December 31, 2029.
Both HSI and HSAG report on a calendar fiscal year-end of December 31. The rollback request is made in accordance with Section 8.02 of Rev. Proc. 2015-41. HSI's federal income tax returns for the rollback years (2022, 2023, and 2024) have been timely filed, and to the best of HSI's knowledge, the transfer pricing positions reported on those returns are consistent with the methodologies proposed in this APA application. HSI is not currently under examination by the IRS for any of the proposed rollback tax years, and no Notices of Deficiency or Revenue Agent Reports with respect to transfer pricing adjustments have been issued for those years.
VI. Pre-Filing Conference
Prior to the submission of this formal APA application, a pre-filing memorandum was submitted anonymously to the IRS APMA on April 14, 2025, in accordance with Section 4 of the Revenue Procedure. A pre-filing conference was subsequently held on May 19, 2025, at the IRS offices in Washington, D.C. Representatives of the APMA program participated in the conference, which addressed the proposed covered transactions, transfer pricing methods, the anticipated scope of the bilateral APA, and the rollback request.
This formal application follows the pre-filing conference and has been prepared in a manner that incorporates the feedback and guidance received from the APMA team during that meeting. In particular, the application narrative and economic analysis have been expanded to include additional discussion of the comparability analysis for the tangible goods transaction, as suggested by the APMA team, and to address certain questions raised during the pre-filing conference regarding the delineation of the cost-sharing arrangement from the licensed intangibles.
VII. German Competent Authority Coordination
Consistent with the bilateral nature of this APA request, a parallel German APA application package is being prepared by HSAG's German tax counsel, Kettner Pflüger Rechtsanwälte (Dr. Tobias Kettner, Partner, Tax; Bockenheimer Landstraße 72, 60323 Frankfurt am Main, Germany), for submission to the Bundeszentralamt für Steuern ("BZSt") in Bonn, Germany. The German application is currently being finalized and is targeted for submission on or about August 15, 2025.
The German application will be submitted pursuant to Article 25 of the US-Germany Income Tax Treaty and in accordance with applicable German procedural requirements, including § 178a of the German Abgabenordnung ("AO") and the relevant administrative guidance of the German Federal Ministry of Finance (Bundesministerium der Finanzen). HSI and HSAG, through their respective counsel, are coordinating the U.S. and German applications to ensure consistency in the description of the covered transactions, the proposed transfer pricing methods, and the supporting economic analyses.
We respectfully request that the APMA program coordinate with the BZSt upon receipt of the German application, in accordance with the mutual agreement procedure provisions of Article 25 of the Treaty and the established bilateral working procedures between the U.S. and German competent authorities.
VIII. Enclosures
The following materials are enclosed with this letter and collectively constitute the APA application submitted on behalf of HSI:
1. IRS Form 14661 — Completed APA Application Form for Halcyon Semiconductor Inc. (EIN: 84-2917630) and Halcyon Semiconductor AG (Steuernummer: 203/118/04527), executed by an authorized officer of HSI.
2. APA Application Supporting Narrative — Comprehensive description of the applicants (HSI and HSAG), their business operations and organizational structure, the covered controlled transactions, the proposed transfer pricing methods for each category of transaction, the proposed APA term, and the rollback request. The narrative addresses each of the items specified in Section 6 of Rev. Proc. 2015-41.
3. Economic Analysis Appendix — Detailed benchmarking studies, including the CPM/TNMM analysis for the tangible goods transactions, the CUT analysis and corroborative residual profit split analysis for the royalty transactions, and the income-method anticipated benefit share analysis for the cost-sharing arrangement. The appendix includes full documentation of comparability adjustments, search strategies, database parameters, and statistical results. The economic analysis was prepared with the assistance of Meridian Economics GmbH (Dr. Annika Breitner, Managing Director; Leopoldstraße 145, 80804 Munich, Germany), an independent transfer pricing economics firm.
4. Legal Analysis Memorandum — Analysis of the legal basis for the proposed transfer pricing methods under IRC § 482, Treasury Regulations §§ 1.482-1 through 1.482-9, the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 ed.), and Articles 9 (Associated Enterprises) and 25 (Mutual Agreement Procedure) of the US-Germany Income Tax Treaty. The memorandum also addresses the penalty protection standards under IRC §§ 6662(e) and 6662(h) and Treasury Regulation § 1.6662-6.
5. Financial Data Appendix — Segmented financial data for HSI and HSAG, intercompany transaction schedules, and reconciliations to audited consolidated financial statements for fiscal years 2020 through 2024. Financial statements have been audited by Gresham Whitfield LLP, independent registered public accounting firm. Key financial data points for FY 2024 are summarized as follows:
Halcyon Semiconductor Inc. (HSI) — FY 2024:
• Net revenue: $4,120,000,000
• Cost of goods sold (inclusive of intercompany purchases): $3,380,000,000
• Gross profit: $740,000,000 (17.96% gross margin)
• Operating expenses: $542,200,000
• Operating income: $197,800,000 (4.80% operating margin)
Halcyon Semiconductor AG (HSAG) — FY 2024 Consolidated:
• Revenue: €8,740,000,000
• EBITDA: €2,620,000,000 (30.0% EBITDA margin)
• EBIT: €1,570,000,000 (18.0% EBIT margin)
• Total R&D expenditures: €1,420,000,000
• Qualified CSA R&D costs: €998,200,000
• Global employees: approximately 22,400 (of which approximately 14,600 in Germany)
• HSAG is publicly listed on the Frankfurt Stock Exchange (XETRA); ISIN: DE000HSA0017; WKN: HSA001
6. IRS Form 2848 — Power of Attorney and Declaration of Representative — Authorizing Leonard Cross, Sylvia Hartwell, and Leila Nazari of Calderwood & Harkness LLP to represent HSI before the IRS for tax years 2022 through 2029 with respect to IRC § 482 transfer pricing matters. Executed by an authorized officer of HSI.
7. User Fee Payment — Check No. 108427, dated July 7, 2025, in the amount of $113,500.00, payable to the order of the United States Treasury, representing the applicable large-case APA user fee for bilateral applications as of the date of this submission, in accordance with Section 4.12 of Rev. Proc. 2015-41 (as updated by subsequent guidance).
IX. Applicable Legal Authorities
The APA application is submitted in reliance upon, and the proposed transfer pricing methods are consistent with, the following legal authorities:
• Internal Revenue Code §§ 482, 6662(e), and 6662(h)
• Treasury Regulations §§ 1.482-1 through 1.482-9
• Treasury Regulation § 1.6662-6
• Revenue Procedure 2015-41, 2015-35 I.R.B. 263
• OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 ed.)
• Convention between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital and to Certain Other Taxes, signed June 29, 2006, Articles 9 (Associated Enterprises) and 25 (Mutual Agreement Procedure)
• German transfer pricing provisions: § 1 Außensteuergesetz ("AStG"); §§ 90(3), 162(3)–(4) Abgabenordnung ("AO"); Gewinnabgrenzungsaufzeichnungsverordnung ("GAufzV")
X. Contact Information and Availability
All communications relating to this APA application should be directed to:
Leonard Cross Partner, Tax Calderwood & Harkness LLP 599 Lexington Avenue, 38th Floor New York, New York 10022 Telephone: (212) 848-6247
Email: leonard.cross@calderwoodharkness.com
Mr. Cross, together with Sylvia Hartwell and Leila Nazari, are available to meet with the APMA team at the program's earliest convenience for purposes of scheduling and conducting an opening conference. We are prepared to accommodate the APMA team's preferred scheduling parameters and can make ourselves available on short notice.
In addition, the following client representatives are available to participate in discussions and to provide information as may be requested by the APMA team:
Priya Raghavan Vice President, Tax Halcyon Semiconductor Inc. 8700 Parmer Lane, Building 4 Austin, Texas 78729 Telephone: (512) 394-7810
Email: priya.raghavan@halcyonsemi.com
Dr. Erwin Fassbinder Senior Vice President, Group Tax Halcyon Semiconductor AG Halcyon-Allee 12 01099 Dresden, Saxony, Germany Telephone: +49 (351) 462-3300
Email: erwin.fassbinder@halcyon-semi.de
XI. Closing
We express our sincere appreciation for the APMA program's consideration of this bilateral APA application. HSI and HSAG are firmly committed to a cooperative and transparent bilateral process and recognize the significant benefits that the APA program provides to taxpayers and tax administrations alike in achieving certainty and preventing double taxation.
HSI and HSAG will fully comply with all information requests and procedural requirements under Rev. Proc. 2015-41 and will cooperate with both the U.S. and German competent authorities throughout the negotiation process. We are prepared to provide any additional information, documentation, or analysis that the APMA team may require in connection with its review of this application.
We look forward to working with the APMA team and stand ready to assist in any manner that will facilitate the efficient and timely processing of this application.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Leonard Cross Partner, Tax Calderwood & Harkness LLP 599 Lexington Avenue, 38th Floor New York, New York 10022
cc:
Priya Raghavan, Vice President, Tax, Halcyon Semiconductor Inc., 8700 Parmer Lane, Building 4, Austin, TX 78729
Dr. Erwin Fassbinder, SVP, Group Tax, Halcyon Semiconductor AG, Halcyon-Allee 12, 01099 Dresden, Germany
Sylvia Hartwell, Partner, Tax, Calderwood & Harkness LLP, 599 Lexington Avenue, 38th Floor, New York, NY 10022
Leila Nazari, Senior Associate, Tax, Calderwood & Harkness LLP, 599 Lexington Avenue, 38th Floor, New York, NY 10022
Dr. Tobias Kettner, Partner, Tax, Kettner Pflüger Rechtsanwälte, Bockenheimer Landstraße 72, 60323 Frankfurt am Main, Germany
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