1037-00007 · Solstice Biomedical Devices Ltd · Opinion

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CALDERWOOD & HARKNESS LLP Attorneys at Law

599 Lexington Avenue, 36th Floor New York, NY 10022 United States

Telephone: (212) 541-8800 Facsimile: (212) 541-8801 www.calderwoodharkness.com

April 10, 2024

Matter No.: 1037-00007

DRAFT — FOR PARTNER REVIEW — PRIVILEGED & CONFIDENTIAL This document constitutes attorney work product and is protected by the attorney-client privilege. It is circulated solely for internal review by the responsible partner and is not to be distributed, furnished, or disclosed to any person or entity outside Calderwood & Harkness LLP without the prior written consent of the responsible partner.

The Board of Directors Solstice Biomedical Devices Ltd. Unit 14, Corrib Technology Park Headford Road Galway, H91 XR72 Ireland

Attention: Fiona Gallagher, Chief Financial Officer Dr. Cathal Morrissey, Chief Executive Officer

Re: Should-Level Tax Opinion — Intercompany Transfer of intellectual Property Portfolio from Solstice Medical Technologies Inc. to Solstice IP Holdings Designated Activity Company and Related License-Back Arrangement

Dear Members of the Board:

I. INTRODUCTION AND SCOPE OF OPINION

Calderwood & Harkness LLP ("we," "us," or "C&H") has been engaged by Solstice Biomedical Devices Ltd. ("SBD" or the "Company"), an Irish private company limited by shares (Companies Registration Office ("CRO") No. 587241), to render a should-level tax opinion regarding the United States federal income tax and Irish tax consequences of the proposed intercompany transfer of SBD's core intellectual property portfolio from Solstice Medical Technologies Inc. ("SMT Inc."), a Delaware C-corporation (Employer Identification Number 84-3291507; Delaware Division of Corporations File No. 7482916), to Solstice IP Holdings Designated Activity Company ("SIP Holdings" or "SIPH"), an Irish designated activity company (CRO No. 714538), and the related license-back arrangement (collectively, the "Transaction").

Our engagement in this matter is governed by the engagement letter between C&H and SBD dated February 9, 2024, pursuant to which our engagement was opened on February 12, 2024, and assigned internal matter number 1037-00007. The terms and conditions set forth in that engagement letter, including limitations on our liability, are incorporated herein by reference and apply to this opinion.

Sylvia Hartwell, Partner, serves as the responsible partner for this engagement. Leonard Cross, Partner, serves as the billing partner. Leila Nazari, Senior Associate, and Robert Jansen, Associate, have assisted in the research, analysis, and preparation of this opinion.

This opinion addresses the following United States federal income tax and Irish tax issues arising in connection with the Transaction:

(a) Whether the IP transfer from SMT Inc. to SIP Holdings will be respected as a bona fide arm's-length transaction under Section 482 of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"), and the Treasury Regulations promulgated thereunder;

(b) The application of IRC § 367(d) to the outbound transfer of intangible property from SMT Inc. (a United States person) to SIP Holdings (a related foreign corporation), including the deemed royalty inclusion mechanism and the advisability of a useful-life election under Treasury Regulation § 1.367(d)-1T;

(c) Whether royalty income earned by SIP Holdings under the license-back arrangement and related group license agreements is subject to inclusion in the income of a United States shareholder as Global Intangible Low-Taxed Income ("GILTI") under IRC § 951A or constitutes Subpart F income under IRC § 952, including foreign personal holding company income ("FPHCI") under IRC § 954(c);

(d) Whether the royalty payments from SMT Inc. to SIP Holdings trigger liability under the Base Erosion and Anti-Abuse Tax ("BEAT") provisions of IRC § 59A, including the applicable taxpayer test, the base erosion percentage calculation, and the modified taxable income computation;

(e) Whether withholding tax on royalty payments from SMT Inc. to SIP Holdings is eliminated or reduced under Article 12 (Royalties) of the Convention between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the "US-Ireland Income Tax Treaty" or the "Treaty"), including analysis of the Limitation on Benefits ("LOB") provisions;

(f) Whether the intellectual property acquired by SIP Holdings qualifies as a "specified intangible asset" under Section 291A of the Taxes Consolidation Act 1997 ("TCA 1997"), thereby entitling SIP Holdings to claim capital allowances (tax depreciation) against its Irish trading income; and

(g) Whether the intercompany pricing arrangements — including the purchase price, royalty rates, cost-plus mark-up, and intercompany loan interest rate — satisfy Irish transfer pricing requirements as amended by the Finance Act 2019.

Opinion Standard. This opinion is rendered at a "should" level. The "should" standard means that we have a confidence level greater than fifty percent (50%) — that is, a "more likely than not" level of confidence — that the tax positions described herein will be sustained if properly raised and challenged by the Internal Revenue Service (the "IRS") or the Irish Revenue Commissioners (the "Revenue Commissioners"), as applicable. However, the level of confidence does not rise to a "will" or "more likely than not to a high degree of certainty" standard. The "should" standard is further described in Section V of this opinion.

II. SUMMARY OF THE TRANSACTION

A. The Parties

The following is a summary description of each of the principal entities involved in, or relevant to, the Transaction. Additional details regarding the ownership structure, governance arrangements, and capitalization of each entity are set forth in the organizational chart and constitutional documents reviewed in connection with this opinion, as described in Section III below.

Solstice Biomedical Devices Ltd. ("SBD"). SBD is an Irish private company limited by shares, incorporated and registered in Ireland under CRO No. 587241, with its registered office at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland. SBD's principal business is the design, manufacture, and distribution of minimally invasive cardiac catheter navigation systems and intra-operative imaging devices. SBD is the ultimate parent company of the Solstice group of companies (the "Group"). For the fiscal year ended December 31, 2023 ("FY2023"), SBD reported consolidated revenue of €347.6 million and consolidated EBITDA of €78.4 million (representing an EBITDA margin of approximately 22.5%). The Group employs approximately 1,640 individuals worldwide across its operations in Ireland, the United States, and other jurisdictions.

SBD's issued share capital is held as follows:

• Pinnacle Growth Equity Partners Fund III, L.P. ("Pinnacle GEP III"): 62.3% of issued ordinary shares. Pinnacle GEP III is a Delaware limited partnership with total committed capital of approximately $2.1 billion (vintage year 2019). The general partner of Pinnacle GEP III is Pinnacle Growth Equity Advisors III LLC, a Delaware limited liability company. The Managing Partner of Pinnacle Growth Equity Advisors III LLC is Jonathan Whitfield, who also serves as a member of the Board of Directors of SBD. Under the shareholders' agreement and constitutional documents of SBD, Pinnacle GEP III board approval is required for material intercompany transactions exceeding €10 million. The Transaction exceeds this threshold, and we are advised that board approval has been duly obtained.

• Dr. Cathal Morrissey (Founder & CEO): 18.4% of issued ordinary shares, held through Morrissey Family Holdings Unlimited Company (CRO No. 492103), an Irish unlimited company.

• Fiona Gallagher (CFO): 2.1% of issued ordinary shares, held directly.

• Other management and employees: The remaining 17.2% of issued ordinary shares are held by various members of SBD's management team and employees, in some cases through employee benefit trust structures.

Solstice Medical Technologies Inc. ("SMT Inc."). SMT Inc. is a Delaware C-corporation, with its principal office located at 2200 Biopharma Drive, Suite 300, Waltham, Massachusetts 02451. SMT Inc. is a wholly owned subsidiary of SBD and is the current holder of the intellectual property portfolio that is the subject of the Transaction. SMT Inc. is responsible for research and development activities, United States regulatory submissions (including submissions to the U.S. Food and Drug Administration), and North American commercial operations for the Group. For FY2023, SMT Inc. reported revenue of $189.2 million, representing approximately 50.1% of SBD's consolidated revenues at the average €1 = $1.09 exchange rate for the period. SMT Inc. employs approximately 580 individuals in the United States. SMT Inc.'s total deductions for FY2023 were $174.8 million, as reflected in its federal income tax return for that year.

Solstice IP Holdings Designated Activity Company ("SIP Holdings" or "SIPH"). SIP Holdings is an Irish designated activity company, incorporated on January 18, 2024, and registered in Ireland under CRO No. 714538, with its registered office at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland. SIP Holdings has an authorized share capital of €1,000, divided into 1,000 ordinary shares of €1.00 each, all of which have been issued and are 100% held by SBD. SIP Holdings was incorporated for the purpose of acquiring the intellectual property portfolio from SMT Inc. and holding, managing, and licensing such intellectual property to SMT Inc. and other Group entities. As a newly incorporated entity, SIP Holdings has no historical financial results.

Pinnacle Growth Equity Partners Fund III, L.P. As noted above, Pinnacle GEP III is the majority shareholder of SBD. The relevance of Pinnacle GEP III to this opinion lies in (i) the governance requirements for board approval of material intercompany transactions exceeding €10 million, which threshold is exceeded by the Transaction, and (ii) the ownership analysis relevant to the LOB provisions of the US-Ireland Income Tax Treaty. We are advised and have assumed that Pinnacle GEP III board approval has been duly obtained.

B. The IP Portfolio

The intellectual property to be transferred in the Transaction (the "IP Portfolio" or the "IP") consists of the following:

• Forty-seven (47) granted United States utility patents, covering various aspects of the Group's proprietary cardiac catheter navigation systems and intra-operative imaging technologies, including the "NaviPulse" catheter guidance platform and the "ClearVue" intra-operative cardiac imaging system;

• Twelve (12) pending United States patent applications relating to next-generation enhancements and extensions of the NaviPulse and ClearVue platforms;

• Associated trade secrets, technical know-how, engineering drawings, manufacturing process documentation, and proprietary software algorithms, in each case relating to the NaviPulse and ClearVue product lines; and

• All goodwill associated with or appurtenant to the foregoing intellectual property.

A complete list of the patents and patent applications comprising the IP Portfolio is attached hereto as Exhibit A.

An independent valuation of the IP Portfolio was performed by Whitmore Valuation Advisors LLC ("WVA"), a nationally recognized valuation firm, under project reference WVA-2023-1187. The valuation engagement was managed by Marcus Whitmore, ASA (Accredited Senior Appraiser), Managing Director of WVA. WVA issued its draft valuation report on January 29, 2024 (the "WVA Valuation Report"). The key findings and conclusions of the WVA Valuation Report are as follows:

• Valuation date: December 31, 2023.

• Fair market value: $214.5 million, determined using the income approach / Discounted cash flow ("DCF") methodology. The DCF analysis discounted the projected future economic benefits attributable to the IP Portfolio using a weighted average cost of capital ("WACC") of 13.5%, which WVA determined to be appropriate for the risk profile of the IP Portfolio based on comparable company analysis and the build-up method.

• Remaining weighted-average useful life: 12.8 years, reflecting the weighted-average remaining term of the granted patents, the expected grant dates and remaining terms of the pending applications, and the economic useful life of the associated trade secrets and know-how.

• Arm's-length royalty rate: 8.0% of net sales attributable to the licensed IP, as determined by WVA's transfer pricing benchmarking analysis using the comparable uncontrolled transaction ("CUT") method and the comparable profits method ("CPM"), also referred to as the transactional net margin method ("TNMM") under the OECD Transfer Pricing Guidelines.

For United States federal income tax purposes, SMT Inc.'s adjusted tax basis in the IP Portfolio is $11.3 million. The IP assets have been substantially fully amortized or expensed for US tax purposes over the course of SMT Inc.'s ownership. Accordingly, the built-in gain for purposes of IRC § 367(d) is calculated as follows:

Fair market value: $214,500,000 Less: Adjusted tax basis: ($11,300,000) Built-in gain: $203,200,000

A summary of the WVA valuation methodology and key assumptions is attached hereto as Exhibit C.

C. Transaction Steps

The Transaction is structured as a series of integrated steps, intended to be executed on or about March 1, 2024 (the "Effective Date"). The principal steps are as follows:

Step 1: IP Acquisition. SIP Holdings will acquire the entire IP Portfolio from SMT Inc. pursuant to the IP Assignment Agreement for a purchase price of $214.5 million, reflecting the fair market value as determined by the WVA Valuation Report. The purchase price will be funded by means of the following:

(a) An intercompany loan from SBD to SIP Holdings in the principal amount of €180.0 million (approximately $196.2 million at the spot exchange rate of €1 = $1.09 as of the Effective Date). The key terms of the intercompany loan are as follows:

• Principal amount: €180,000,000

• Term: 10 years, maturing March 1, 2034

• Interest rate: 3.75% per annum, fixed for the term (benchmarked by WVA's intercompany debt pricing analysis, which assessed the creditworthiness of SIP Holdings on a standalone basis and benchmarked the interest rate against comparable arm's-length intercompany and third-party lending transactions)

• Annual interest expense: €6,750,000 (€180,000,000 × 3.75%)

• Repayment schedule: Interest-only for years 1 through 3 (i.e., March 1, 2024 through February 28, 2027); thereafter, equal annual principal installments of approximately €25,714,286 (€180,000,000 ÷ 7) plus accrued interest, payable in years 4 through 10

• Security: Unsecured, consistent with the intercompany nature of the obligation

(b) SIP Holdings equity of €1,000 (representing the fully paid-up issued share capital of SIP Holdings) plus a shareholder capital contribution from SBD to SIP Holdings of €16.7 million (approximately $18.2 million at the €1 = $1.09 spot rate). The capital contribution, together with the intercompany loan proceeds, will provide SIP Holdings with the funds necessary to pay the $214.5 million purchase price to SMT Inc.

Step 2: Exclusive License-Back Agreement. Contemporaneously with the closing of the IP acquisition, SIP Holdings will enter into an exclusive license agreement with SMT Inc. (the "License-Back Agreement"), pursuant to which SIP Holdings will grant SMT Inc. an exclusive, non-transferable license to exploit the IP Portfolio throughout North America (the United States, Canada, and Mexico) in connection with SMT Inc.'s ongoing research, development, manufacturing, regulatory, and commercial activities. In consideration for the license, SMT Inc. will pay SIP Holdings an arm's-length royalty of 8.0% of net sales attributable to products and services incorporating or derived from the licensed IP. Based on SMT Inc.'s FY2023 revenue of $189.2 million, the projected Year 1 royalty payment under the License-Back Agreement is $15.136 million ($189.2 million × 8.0%).

Step 3: Rest-of-World License Agreements. SIP Holdings will also enter into separate license agreements with SBD and other Group entities for the exploitation of the IP Portfolio outside of North America. The royalty rates under these rest-of-world license agreements will range from 4.0% to 6.5% of net sales, depending on the territory and the value-added functions, assets, and risks assumed by the local Group entity in each jurisdiction. The differential between the North American royalty rate (8.0%) and the rest-of-world rates reflects the greater value-added contribution of the North American market, including the significant marketing, distribution, and regulatory infrastructure maintained by SMT Inc. in the United States.

Step 4: Cost-Plus R&D Services Agreement. SMT Inc. will enter into a Cost-Plus R&D Services Agreement with SIP Holdings, pursuant to which SMT Inc. will continue to perform contract research and development services for SIP Holdings in relation to the ongoing development, enhancement, and maintenance of the IP Portfolio. SMT Inc. will be compensated at cost plus a mark-up of 8.0%, reflecting the arm's-length compensation for a contract research and development service provider as benchmarked by WVA. This arrangement is intended to ensure that SIP Holdings, as the IP owner, bears the economic risk and rewards of R&D activities while compensating SMT Inc. at an arm's-length rate for the services it performs.

A diagram illustrating the Transaction structure is attached hereto as Exhibit B.

III. DOCUMENTS AND MATERIALS REVIEWED

In rendering this opinion, we have reviewed and relied upon the following documents, materials, and information:

1. Whitmore Valuation Advisors LLC draft IP valuation report dated January 29, 2024, project reference WVA-2023-1187, prepared by Marcus Whitmore, ASA, Managing Director (the "WVA Valuation Report"), including the income approach / DCF valuation of the IP Portfolio at $214.5 million with a 13.5% WACC and 12.8-year remaining weighted-average useful life;

2. WVA transfer pricing benchmarking analysis for the determination of the arm's-length royalty rate of 8.0% of net sales for the North American License-Back Agreement, utilizing the CUT method and CPM/TNMM;

3. WVA intercompany debt pricing analysis supporting the 3.75% fixed interest rate for the €180.0 million intercompany loan from SBD to SIP Holdings;

4. Organizational chart of the SBD Group, including SBD, SMT Inc., SIP Holdings, and other relevant subsidiaries and affiliates;

5. Certificate of incorporation and constitutional documents (memorandum and articles of association) of Solstice IP Holdings Designated Activity Company (CRO No. 714538, incorporated January 18, 2024);

6. Draft IP Assignment Agreement between SMT Inc. (as assignor) and SIP Holdings (as assignee), providing for the transfer of the IP Portfolio at a purchase price of $214.5 million;

7. Draft Exclusive License-Back Agreement between SIP Holdings (as licensor) and SMT Inc. (as licensee) for the exploitation of the IP Portfolio in North America at a royalty rate of 8.0% of net sales;

8. Draft rest-of-world License Agreements between SIP Holdings (as licensor) and SBD and other Group entities (as licensees) for the exploitation of the IP Portfolio outside North America at royalty rates ranging from 4.0% to 6.5% of net sales;

9. Draft Cost-Plus R&D Services Agreement between SMT Inc. (as service provider) and SIP Holdings (as service recipient) providing for contract R&D services at cost plus 8.0%;

10. Intercompany loan agreement term sheet for the €180.0 million loan from SBD to SIP Holdings (3.75% fixed interest rate, 10-year term, interest-only for years 1–3, principal amortization in years 4–10);

11. SMT Inc. United States federal income tax returns (Forms 1120) for fiscal years 2021, 2022, and 2023, together with all supporting schedules and attachments;

12. SMT Inc. US book and tax basis schedules for intellectual property assets, reflecting an adjusted tax basis of $11.3 million as of December 31, 2023;

13. SMT Inc. FY2023 total deductions schedule, reflecting total deductions of $174.8 million;

14. SBD consolidated audited financial statements for the fiscal year ended December 31, 2023, prepared by Pemberton Hale LLP (Aisling Brennan, Audit Partner), reflecting consolidated revenue of €347.6 million and consolidated EBITDA of €78.4 million;

15. Factual Assumptions and Representations Letter dated March 8, 2024, signed by Fiona Gallagher (Chief Financial Officer) and Dr. Cathal Morrissey (Chief Executive Officer) on behalf of SBD and SMT Inc. (the "Representations Letter");

16. United States Patent and Trademark Office records for the 47 granted United States utility patents and 12 pending United States patent applications comprising the IP Portfolio;

17. Correspondence and work product from Harrington & Cahill, Chartered Tax Advisors (Niamh O'Sullivan, Tax Partner) regarding Irish tax compliance matters, including Section 291A TCA 1997 capital allowance analysis and Irish transfer pricing documentation;

18. Correspondence from Dalton Byrne & Partners, Solicitors (Séamus Dalton, Managing Partner) regarding Irish corporate law and intellectual property assignment matters;

19. Correspondence from Lattimore & Stern CPAs LLP (David Lattimore, CPA) regarding SMT Inc. US federal income tax compliance matters, including historical tax return positions and deduction schedules;

20. The Convention between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the US-Ireland Income Tax Treaty), including the Technical Explanation thereof;

21. Relevant provisions of the Internal Revenue Code of 1986, as amended, including without limitation Sections 59A, 367(d), 482, 936(h)(3)(B), 951A, 952, 954, 958, 6662, and 7701, together with the Treasury Regulations promulgated thereunder and relevant IRS guidance (including revenue rulings, revenue procedures, notices, and announcements); and

22. Relevant provisions of the Taxes Consolidation Act 1997 (as amended by the Finance Act 2019 and subsequent legislation), including Section 291A (capital allowances for specified intangible assets) and the transfer pricing provisions, together with relevant Irish Revenue guidance and practice notes.

We have not undertaken any independent investigation or verification of the facts, financial data, or projections set forth in the foregoing documents, and we have assumed the accuracy and completeness of all information provided to us.

IV. FACTUAL ASSUMPTIONS AND REPRESENTATIONS

This opinion relies upon the factual representations set forth in the Representations Letter dated March 8, 2024, signed by Fiona Gallagher (Chief Financial Officer) and Dr. Cathal Morrissey (Chief Executive Officer) on behalf of SBD and SMT Inc. We have assumed, without independent verification, that each of these representations is true, correct, and complete in all material respects as of the date hereof and will remain so through the closing and implementation of the Transaction. The key representations upon which this opinion relies include the following:

(a) The purchase price of $214.5 million for the IP Portfolio reflects the fair market value of the IP Portfolio as of December 31, 2023, as independently determined by WVA using the income approach / DCF methodology with a WACC of 13.5%.

(b) The royalty rate of 8.0% of net sales under the License-Back Agreement was independently benchmarked by WVA and reflects arm's-length pricing for comparable intellectual property license transactions in the medical device industry, taking into account the functions performed, assets employed, and risks assumed by the licensor (SIP Holdings) and the licensee (SMT Inc.).

(c) SIP Holdings will have genuine economic substance in Ireland. Specifically, SIP Holdings' central management and control will be exercised in Ireland; the board of directors of SIP Holdings will hold regular meetings in Ireland and make strategic decisions regarding the IP Portfolio in Ireland; SIP Holdings will engage qualified personnel in Ireland with the skills, expertise, and authority to manage the IP Portfolio; and SIP Holdings will maintain its registered office and principal place of business at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland.

(d) The intercompany loan of €180.0 million from SBD to SIP Holdings at a fixed interest rate of 3.75% per annum was priced on arm's-length terms, as supported by WVA's intercompany debt pricing analysis, which benchmarked the interest rate against comparable arm's-length lending transactions involving borrowers with similar credit profiles and loan characteristics.

(e) The IP Portfolio has a remaining weighted-average useful life of 12.8 years, as determined by WVA based on the weighted-average remaining patent terms, the expected grant dates of pending applications, and the economic useful life of the associated trade secrets and know-how.

(f) SMT Inc.'s adjusted tax basis in the IP Portfolio, as reflected on SMT Inc.'s US federal income tax books and records, is $11.3 million as of the Effective Date. The IP assets have been substantially fully amortized or expensed for US federal income tax purposes.

(g) SMT Inc.'s total deductions for FY2023, as reported on its US federal income tax return (Form 1120), were $174.8 million.

(h) The IP Portfolio constitutes intangible property within the meaning of IRC § 936(h)(3)(B), as that term is applied under IRC § 367(d).

(i) SIP Holdings qualifies under Section 291A TCA 1997 for capital allowances on specified intangible assets, and the IP Portfolio consists of qualifying "specified intangible assets" within the meaning of that provision.

(j) Pinnacle GEP III board approval was duly obtained for the Transaction, in accordance with the governance requirements set forth in SBD's shareholders' agreement and constitutional documents.

(k) The Transaction will be executed on or about March 1, 2024 (the target Effective Date), and all steps described in Section II.C above will be implemented substantially as described therein.

(l) No elections or transactions not described in the Transaction Steps will be made or undertaken that would materially alter the US federal income tax or Irish tax consequences of the Transaction.

We have not independently verified these factual representations and have assumed them to be true, correct, and complete in all material respects. If any of these assumptions or representations are inaccurate, incomplete, or change in any material respect, our opinion could be adversely affected and may no longer be relied upon. In such event, we should be consulted promptly to determine whether the conclusions set forth herein remain valid.

V. OPINION STANDARD

This opinion is rendered at a "should" level of confidence. As used in this opinion, the term "should" means that, based on our analysis of the relevant legal authorities, factual representations, and assumptions described herein, we believe that the tax positions described in this opinion have a greater than fifty percent (50%) likelihood of being sustained on their merits if properly raised and challenged by the relevant taxing authority — that is, the IRS with respect to United States federal income tax matters, or the Irish Revenue Commissioners with respect to Irish tax matters.

The "should" standard represents a "more likely than not" level of confidence. It signifies that, in our professional judgment, the weight of the applicable legal authorities and the relevant facts and circumstances supports the tax positions described herein, and that a taxpayer adopting such positions would more likely than not prevail if the positions were examined by the relevant taxing authority and ultimately adjudicated. However, the "should" standard is below a "will" level of confidence, which would require a substantially higher degree of certainty that the positions will be sustained. The "should" standard also falls below the "substantial authority" standard and the "realistic possibility of success" standard applicable in certain penalty contexts, although we believe the positions described herein would likely satisfy those standards as well.

It is important to emphasize that this opinion does not constitute a guarantee of any particular tax outcome. The tax treatment of the Transaction will depend upon facts and circumstances that may develop after the date of this opinion, as well as the interpretation and application of the relevant tax laws, regulations, and treaties by the IRS, the Revenue Commissioners, and the courts. There can be no assurance that the IRS or the Revenue Commissioners will agree with the positions set forth herein, or that a court would sustain such positions if they were challenged.

This opinion does not address any tax consequences under United States state or local tax law (except to the extent specifically discussed herein), nor does it address tax consequences in any jurisdiction other than the United States (at the federal level) and Ireland. In particular, this opinion does not address the tax consequences of the Transaction in Canada, Mexico, or any other jurisdiction in which Group entities may operate or in which the IP Portfolio may be exploited.

VI. ANALYSIS AND OPINIONS

A. IRC § 482 — Arm's-Length Standard and Transfer Pricing

1. IP Purchase Price ($214.5 Million)

Section 482 of the Code authorizes the IRS to distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among two or more organizations, trades, or businesses owned or controlled directly or indirectly by the same interests, if it determines that such distribution, apportionment, or allocation is necessary to prevent evasion of taxes or clearly to reflect the income of any such organization, trade, or business. The standard for determining whether a controlled transaction produces results consistent with an arm's-length result is set forth in the Treasury Regulations under IRC § 482, specifically Treas. Reg. §§ 1.482-1 through 1.482-9.

For purposes of transfers of intangible property, Treas. Reg. § 1.482-4 provides guidance on the determination of arm's-length consideration. The regulations permit the use of various methods, including the comparable uncontrolled transaction method, the comparable profits method, the profit split method, and unspecified methods. The "best method" rule of Treas. Reg. § 1.482-1(c) requires that the arm's-length result be determined under the method that, given the facts and circumstances, provides the most reliable measure of an arm's-length result.

In the case of the IP acquisition, WVA utilized the income approach / Discounted cash flow methodology to determine the fair market value of the IP Portfolio. The DCF methodology projects the future economic benefits (cash flows) attributable to the IP Portfolio over its remaining weighted-average useful life of 12.8 years and discounts those projected cash flows to their present value using a WACC of 13.5%. The 13.5% WACC reflects WVA's assessment of the appropriate risk-adjusted discount rate for the IP Portfolio, taking into account the cost of equity and cost of debt for comparable publicly traded medical device companies, the specific risk characteristics of the NaviPulse and ClearVue product lines, and the company-specific risk premium associated with SBD's market position and competitive environment.

The WVA Valuation Report valued the IP Portfolio at $214.5 million as of December 31, 2023. This valuation encompasses the 47 granted US utility patents, the 12 pending US patent applications, and the associated trade secrets, know-how, engineering drawings, manufacturing process documentation, and proprietary software algorithms. We have reviewed the WVA Valuation Report and believe that the methodology employed is consistent with the valuation methods recognized under Treas. Reg. § 1.482-4 and generally accepted valuation principles. We have not, however, independently verified the financial projections, discount rate assumptions, or comparable transaction data underlying the WVA analysis.

A critical consideration in the IRC § 482 analysis is the "commensurate with income" standard, which was added to IRC § 482 by the Tax Reform Act of 1986. Under this standard, the consideration charged in a controlled transaction involving the transfer of intangible property must be commensurate with the income attributable to the intangible. This requirement applies not only at the time of the initial transfer but on an ongoing basis: the IRS retains the authority to make periodic adjustments to the consideration if actual income from the transferred intangibles materially deviates from the income that was projected at the time of the transfer. Treas. Reg. § 1.482-4(f)(2) provides specific guidance on when periodic adjustments may be required, including a "comparable intangible property" safe harbor and an "extraordinary events" exception.

The $214.5 million purchase price is based on income projections that, by their nature, are forward-looking and subject to uncertainty. If SMT Inc.'s actual revenue or profitability attributable to the IP Portfolio materially exceeds or falls short of the projections underlying the WVA valuation, the IRS may seek to adjust the purchase price or the royalty rate under the commensurate-with-income standard. We recommend that the Company implement a process for ongoing monitoring of actual results against the projections and maintain contemporaneous documentation sufficient to demonstrate that the pricing remains arm's-length over time.

2. License-Back Royalty Rate (8.0% of Net Sales)

The License-Back Agreement provides for an arm's-length royalty of 8.0% of net sales attributable to products and services incorporating or derived from the licensed IP, payable by SMT Inc. to SIP Holdings. Based on SMT Inc.'s FY2023 revenue of $189.2 million, the projected Year 1 royalty payment is $15.136 million ($189.2 million × 8.0%).

WVA determined the 8.0% royalty rate through a benchmarking analysis utilizing the comparable uncontrolled transaction ("CUT") method and the comparable profits method ("CPM"), also referred to as the transactional net margin method ("TNMM"). The CUT method identifies comparable arm's-length license transactions involving similar intellectual property in the medical device and life sciences industries and compares the royalty rates charged in those transactions to the royalty rate proposed for the License-Back Agreement. The CPM/TNMM evaluates the net profit margins earned by comparable companies performing functions similar to those of SMT Inc. (i.e., as a licensed distributor and service provider) to determine whether SMT Inc. retains an arm's-length level of profitability after payment of the royalty.

In evaluating the arm's-length nature of the 8.0% royalty rate, we have considered the functions performed, assets employed, and risks assumed by each party to the License-Back Agreement. SMT Inc. performs significant value-added functions in North America, including research and development, regulatory submissions, manufacturing, marketing, and distribution. SMT Inc. employs approximately 580 individuals and maintains substantial tangible assets, including laboratory and manufacturing equipment, in Waltham, Massachusetts. SIP Holdings, as the IP owner, bears the economic risk and rewards of IP ownership, including the risk of technological obsolescence, competitive displacement, and regulatory changes, and is responsible for the strategic management and exploitation of the IP Portfolio.

The rest-of-world royalty rates ranging from 4.0% to 6.5% of net sales provide additional evidence supporting the arm's-length nature of the North American royalty rate. The differential between the North American rate (8.0%) and the rest-of-world rates reflects the greater concentration of value-added functions, market-specific intangible value, and competitive advantages associated with the North American market. This territorial differentiation is consistent with the arm's-length principle as articulated in Treas. Reg. § 1.482-1(b)(1) and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

As with the purchase price, the royalty rate is subject to the commensurate-with-income standard. If actual revenues and profitability of SMT Inc. change materially, the IRS may assert that the 8.0% royalty rate is no longer arm's-length and seek to adjust it. We recommend that the Company maintain contemporaneous transfer pricing documentation, including annual updates to the benchmarking analysis, to demonstrate ongoing compliance with the arm's-length standard.

3. Cost-Plus R&D Services Agreement (Cost + 8.0%)

Under the Cost-Plus R&D Services Agreement, SMT Inc. will continue to perform contract research and development services for SIP Holdings at cost plus a mark-up of 8.0%. This arrangement reflects the fact that, following the IP transfer, SIP Holdings will be the owner of the IP and the principal with respect to R&D activities, while SMT Inc. will serve as a contract R&D service provider. The cost-plus mark-up of 8.0% is intended to compensate SMT Inc. at an arm's-length rate for the services it performs, taking into account the functions, assets, and risks retained by SMT Inc. in its capacity as a contract service provider (which are more limited than those it bore as the IP owner).

SMT Inc. retains its approximately 580 employees, including research scientists, engineers, and regulatory specialists, who will perform the R&D services on behalf of SIP Holdings. The 8.0% mark-up is consistent with the range of mark-ups observed in comparable arm's-length contract R&D services arrangements in the medical device and life sciences industries, as benchmarked by WVA.

We have reviewed the proposed Cost-Plus R&D Services Agreement and the WVA benchmarking analysis supporting the 8.0% mark-up, and we believe the terms are consistent with the arm's-length standard under Treas. Reg. §§ 1.482-4 and 1.482-9.

4. Intercompany Loan Pricing (€180.0 Million at 3.75%)

The intercompany loan from SBD to SIP Holdings in the principal amount of €180.0 million bears a fixed interest rate of 3.75% per annum. WVA's intercompany debt pricing analysis supports this interest rate as arm's-length, based on a comparison to interest rates observed in comparable arm's-length lending transactions involving borrowers with credit profiles and loan characteristics similar to those of SIP Holdings, considered as a standalone entity. The analysis took into account the creditworthiness of SIP Holdings (including its projected cash flows from royalty income, its capitalization, and its asset base), the tenor and repayment terms of the loan, the absence of third-party security, and prevailing market interest rates for euro-denominated loans as of the Effective Date.

The annual interest expense of €6.75 million (€180.0 million × 3.75%) represents the consideration charged for the use of the loan proceeds. The repayment schedule — interest-only for years 1 through 3, followed by equal annual principal installments of approximately €25.71 million plus interest in years 4 through 10 — is consistent with commercial lending practices for similar intercompany financing arrangements.

Under Treas. Reg. § 1.482-2(a), the IRS may adjust the interest rate charged in a controlled financing transaction if it does not reflect an arm's-length rate. We believe the 3.75% fixed rate, as supported by the WVA intercompany debt pricing analysis, is within the range of arm's-length rates for comparable transactions.

5. Opinion — IRC § 482

Based on our review of the WVA Valuation Report, the WVA benchmarking analyses, the terms of the draft transaction agreements, and the applicable provisions of IRC § 482 and the Treasury Regulations thereunder, it is our opinion that:

The $214.5 million purchase price for the IP Portfolio and the 8.0% royalty rate under the License-Back Agreement should satisfy the arm's-length standard under IRC § 482, including the "commensurate with income" requirement of IRC § 482 as applied under Treas. Reg. § 1.482-4(f)(2), based on the WVA valuation and benchmarking analysis.

We note, however, that the IRS retains the authority to make periodic adjustments under the commensurate-with-income standard if actual results materially diverge from the projections underlying the WVA valuation. We recommend that the Company implement ongoing monitoring procedures and maintain contemporaneous transfer pricing documentation in accordance with IRC § 6662(e) and Treas. Reg. § 1.6662-6 to support the arm's-length nature of the Transaction pricing on an annual basis.

B. IRC § 367(d) — Outbound Transfer of Intangible Property

1. Application of IRC § 367(d)

Section 367(d) of the Code provides a special rule for the treatment of outbound transfers of intangible property from a United States person to a foreign corporation in connection with certain nonrecognition exchanges. Under IRC § 367(d)(1), if a United States person transfers intangible property (as defined in IRC § 936(h)(3)(B)) to a foreign corporation in an exchange described in IRC § 332, 351, 354, 356, or 361, the transferor is treated as having sold the intangible property in exchange for payments that are contingent upon the productivity, use, or disposition of the property, and the transferor must include in income amounts that are commensurate with the income attributable to the transferred intangible over its useful life.

The intangible property subject to IRC § 367(d) includes, inter alia, patents, inventions, formulae, processes, designs, patterns, know-how, copyrights, trademarks, trade names, and other items described in IRC § 936(h)(3)(B). The IP Portfolio — consisting of 47 granted US utility patents, 12 pending US patent applications, and associated trade secrets, technical know-how, engineering drawings, manufacturing process documentation, and proprietary software algorithms — constitutes intangible property within the meaning of IRC § 936(h)(3)(B).

The transfer from SMT Inc. (a Delaware C-corporation and United States person) to SIP Holdings (a foreign corporation organized under the laws of Ireland) triggers the application of IRC § 367(d). SIP Holdings is a related foreign corporation for purposes of § 367(d), as it is 100% owned by SBD, which in turn owns 100% of the stock of SMT Inc. (both directly through the share capital and indirectly through the corporate chain of ownership). Under the constructive ownership rules of IRC § 318 (as modified by IRC § 958(b)), SMT Inc. and SIP Holdings are under common ownership and control.

The built-in gain in the IP Portfolio for purposes of IRC § 367(d) is $203.2 million, calculated as the excess of the $214.5 million fair market value over the $11.3 million adjusted tax basis.

Under the deemed royalty mechanism of IRC § 367(d), SMT Inc. is treated as receiving annual payments contingent on the productivity, use, or disposition of the transferred intangibles. These deemed payments are included in SMT Inc.'s gross income and are taxed as ordinary income. The amount of the deemed annual payments is determined by applying the commensurate-with-income standard, which requires that the inclusions be commensurate with the income attributable to the transferred intangibles.

2. Useful-Life Election

Treasury Regulation § 1.367(d)-1T(c)(3) provides that a US transferor may elect to treat the deemed payments as being received over the useful life of the transferred intangible, rather than over an indefinite period. Under this election, the deemed annual inclusions are spread over the remaining useful life of the intangible, as determined at the time of the transfer. If no useful-life election is made, the deemed inclusions continue indefinitely (for so long as the transferred intangible generates income), which creates uncertainty regarding the total amount and duration of the inclusions.

In the case of the IP Portfolio, the remaining weighted-average useful life is 12.8 years, as determined by the WVA Valuation Report. If the useful-life election is made, the deemed annual inclusions under IRC § 367(d) would be determined over this 12.8-year period, providing a finite recognition period and greater certainty regarding the total amount of income that SMT Inc. will be required to include.

The advantages of making the useful-life election include: (i) the recognition period is finite (12.8 years), which provides greater predictability for tax planning and financial reporting purposes; (ii) the total deemed inclusions over the useful life period are more readily quantifiable; and (iii) the useful-life election aligns the deemed inclusion period with the period over which the IP is expected to generate economic benefits.

The principal consideration against the useful-life election is that, if actual income from the transferred intangibles exceeds the projections underlying the WVA valuation, additional inclusions may be required under the commensurate-with-income rules. Additionally, once the useful-life election is made, it is generally irrevocable.

On balance, we believe the useful-life election is advisable and recommend that SMT Inc. make the election in connection with the filing of its US federal income tax return for the taxable year in which the transfer occurs.

3. Interplay Between § 367(d) Deemed Inclusions and License-Back Royalties

The interaction between the deemed royalty inclusions under IRC § 367(d) and the actual royalty payments received by SIP Holdings under the License-Back Agreement presents a significant area of complexity. Under Treas. Reg. § 1.367(d)-1T(c)(2), the deemed inclusions are treated as if the US transferor had sold the intangible for a series of payments contingent on productivity. These amounts are included in SMT Inc.'s income regardless of the separate royalty flow from SMT Inc. to SIP Holdings under the License-Back Agreement.

There is a potential for economic double inclusion in the following sense: (a) SMT Inc. includes the deemed royalty amounts under § 367(d); (b) SMT Inc. also pays actual royalties to SIP Holdings under the License-Back Agreement, which are deductible to SMT Inc. but are included in SIP Holdings' income and may be subject to GILTI inclusion under IRC § 951A or Subpart F inclusion under IRC § 952 in the hands of a United States shareholder of SIP Holdings. The coordination of these overlapping provisions is critical to ensuring that the Transaction does not result in actual double taxation.

Under Treas. Reg. § 1.367(d)-1T(c)(2)(ii), the IRS has acknowledged the potential for overlap and has provided certain coordination mechanisms. To the extent that the actual royalty payments from SMT Inc. to SIP Holdings are treated as arm's-length consideration for the use of the intangible property, the deemed inclusions under § 367(d) should be coordinated with (and, in appropriate circumstances, offset by) the actual royalty deductions taken by SMT Inc. The specific mechanics of this coordination are complex and fact-dependent, and we recommend that SMT Inc. and its return preparers at Lattimore & Stern CPAs LLP carefully implement the coordination provisions in filing SMT Inc.'s federal income tax returns.

4. Opinion — IRC § 367(d)

Based on our analysis of IRC § 367(d) and the Treasury Regulations thereunder, it is our opinion that:

The deemed royalty inclusions under IRC § 367(d) arising from the transfer of the IP Portfolio from SMT Inc. to SIP Holdings should be properly calculated based on the $203.2 million built-in gain and the 12.8-year remaining weighted-average useful life (assuming the useful-life election under Treas. Reg. § 1.367(d)-1T(c)(3) is made). We recommend that SMT Inc. make the useful-life election. The deemed annual inclusions should be coordinated with the actual royalty deductions taken by SMT Inc. under the License-Back Agreement, subject to proper implementation of the coordination provisions under the applicable Treasury Regulations, such that actual double taxation should be avoided.

C. IRC § 951A — Global Intangible Low-Taxed Income (GILTI)

1. GILTI Framework

Section 951A of the Code, enacted by the Tax Cuts and Jobs Act of 2017, requires each "United States shareholder" of a "controlled foreign corporation" ("CFC") to include in gross income its "global intangible low-taxed income" for the taxable year. GILTI is generally calculated as the excess of a US shareholder's "net CFC tested income" over its "net deemed tangible income return" (defined as 10% of the US shareholder's pro rata share of the "qualified business asset investment" ("QBAI") of its CFCs, reduced by certain interest expense).

SIP Holdings is a CFC within the meaning of IRC § 957(a). SIP Holdings is 100% owned by SBD, an Irish company. SMT Inc. is a US subsidiary of SBD. Under the constructive ownership rules of IRC § 958, particularly § 958(b) (which applies the constructive ownership rules of IRC § 318 with certain modifications), the question arises whether SMT Inc. is a "United States shareholder" of SIP Holdings within the meaning of IRC § 951(b). A United States shareholder is defined as a United States person who owns (directly, indirectly, or constructively under § 958) 10% or more of the total combined voting power or value of all classes of stock of a foreign corporation.

Prior to the repeal of the so-called "downward attribution" limitation by the Tax Cuts and Jobs Act, stock owned by a foreign person was not attributed downward to a US subsidiary for purposes of determining US shareholder status. However, following the repeal of the former IRC § 958(b)(4) for taxable years of foreign corporations beginning after December 31, 2017, stock of SIP Holdings owned by SBD (a foreign person) may be attributed downward to SMT Inc. (a US subsidiary) for purposes of determining whether SMT Inc. is a United States shareholder of SIP Holdings. Under this analysis, SMT Inc. would constructively own 100% of SIP Holdings through its parent SBD, and SIP Holdings would be a CFC with respect to which SMT Inc. is a United States shareholder.

The royalty income earned by SIP Holdings from the License-Back Agreement and from the rest-of-world license agreements would constitute "tested income" under IRC § 951A(c)(2)(A), to the extent such income is not otherwise excluded from tested income (e.g., under the high-tax exclusion or as income effectively connected with a US trade or business).

2. QBAI Exception

Under the GILTI computation, a US shareholder's GILTI inclusion is reduced by the "net deemed tangible income return," which is calculated as 10% of the US shareholder's pro rata share of the aggregate QBAI of its CFCs. QBAI is defined as the average of the aggregate adjusted bases (determined under the alternative depreciation system of IRC § 168(g)) of the depreciable tangible property used by the CFC in its trade or business.

SIP Holdings is an intellectual property holding entity. Its tangible asset base is expected to be minimal, consisting primarily of office equipment, furniture, and information technology infrastructure at its Galway office. The value of such tangible depreciable assets is not expected to be significant relative to the royalty income generated by SIP Holdings. Accordingly, the QBAI exception is unlikely to provide meaningful relief from GILTI inclusions.

3. High-Tax Exclusion

Section 951A(c)(2)(A)(i)(III) and Treas. Reg. § 1.951A-2(c)(7) provide for a "high-tax exclusion" from GILTI tested income. Under this exclusion, a CFC's tested income is excluded from the GILTI computation if the effective rate of foreign income tax imposed on such income exceeds 90% of the maximum US corporate tax rate. For purposes of this analysis, the maximum US corporate tax rate is 21%, and 90% thereof is 18.9%.

The question is whether SIP Holdings' effective Irish tax rate on its royalty income exceeds 18.9%. Ireland's standard corporation tax rate on trading income is 12.5%. However, the effective rate of Irish tax on SIP Holdings' royalty income will be reduced by the Section 291A TCA 1997 capital allowances available on the cost of acquiring the IP Portfolio. As discussed in Section VI.G below, SIP Holdings is expected to claim annual capital allowances of approximately €13.12 million against its Irish trading income. The effect of these capital allowances is to reduce SIP Holdings' Irish taxable income, thereby reducing its effective Irish tax rate below the statutory 12.5% rate.

For illustrative purposes, if SIP Holdings' projected Year 1 royalty income is approximately $15.136 million from SMT Inc. alone (plus additional royalty income from rest-of-world licensees), and the Section 291A capital allowance is approximately €13.12 million (approximately $14.3 million at the €1 = $1.09 rate), the capital allowance would shelter a substantial portion of SIP Holdings' Irish taxable income, potentially resulting in an effective Irish tax rate well below 18.9%. Consequently, the high-tax exclusion may not be available.

We note, however, that the high-tax exclusion analysis must be performed on a tested-unit basis under Treas. Reg. § 1.951A-2(c)(7)(ii), and the effective rate calculation depends on the aggregate amount of royalty income from all sources, the timing and amount of the capital allowances, and any other Irish tax deductions available to SIP Holdings. This analysis should be updated annually as actual financial results become available.

4. Opinion — GILTI

Based on our analysis of IRC § 951A and the Treasury Regulations thereunder, it is our opinion that:

Royalty income earned by SIP Holdings under the License-Back Agreement and the rest-of-world license agreements should constitute tested income subject to GILTI inclusion under IRC § 951A, to the extent not otherwise excluded under the high-tax exclusion or other applicable provisions. The QBAI exception is unlikely to provide significant relief from GILTI inclusions, given SIP Holdings' limited tangible depreciable asset base. The availability of the high-tax exclusion will depend on SIP Holdings' effective Irish tax rate after taking into account Section 291A TCA 1997 capital allowances and other Irish tax deductions, and should be evaluated on an annual basis.

D. IRC § 952 — Subpart F Income

1. Foreign Personal Holding Company Income (FPHCI)

Under IRC § 952(a), the Subpart F income of a CFC includes, among other items, the CFC's "foreign personal holding company income" as defined in IRC § 954(c). FPHCI includes, inter alia, royalties (including royalties from the licensing of intellectual property), unless an exception applies. IRC § 954(c)(1)(A) broadly defines FPHCI to include "dividends, interest, royalties, rents, and annuities."

The royalty income earned by SIP Holdings from SMT Inc. under the License-Back Agreement, and from SBD and other Group entities under the rest-of-world license agreements, falls squarely within the statutory definition of FPHCI. Absent the application of an exception, such royalty income would constitute Subpart F income includible in the income of SIP Holdings' United States shareholder (i.e., SMT Inc., through constructive ownership) under IRC § 951(a).

2. Same-Country Exception and Active Business Exception

Several potential exceptions to the FPHCI classification merit consideration. First, the "same-country exception" under IRC § 954(c)(3) excludes from FPHCI certain royalties received from a related person organized in the same country as the CFC. This exception is not applicable to the royalty payments from SMT Inc. (a US corporation) to SIP Holdings (an Irish entity), as the payor and the payee are organized in different countries. Nor is it applicable to royalties received from Group entities organized in jurisdictions other than Ireland.

Second, the "active trade or business" or "active licensing" exception may be relevant. Under IRC § 954(c)(2)(A), royalties derived in the active conduct of a trade or business are excluded from FPHCI. To qualify for this exception, the CFC must demonstrate that it is engaged in the active conduct of a trade or business and that the royalty income is derived in connection with that active trade or business. In the context of intellectual property licensing, this generally requires the CFC to perform significant management, development, enhancement, maintenance, protection, and exploitation ("DEMPE") functions with respect to the licensed IP, using its own employees, resources, and expertise.

Whether SIP Holdings can satisfy the active trade or business exception will depend on the extent and nature of the DEMPE activities it performs in Ireland. The Cost-Plus R&D Services Agreement provides that SMT Inc. will continue to perform contract R&D services for SIP Holdings, which may raise questions about whether SIP Holdings (as opposed to SMT Inc.) is truly performing the development and enhancement functions. However, if SIP Holdings exercises strategic control and decision-making authority over the direction, prioritization, and budget allocation of R&D activities — and if SIP Holdings employs qualified personnel in Ireland with the expertise to manage the IP Portfolio — then SIP Holdings may be able to demonstrate that it is engaged in an active trade or business with respect to the IP, notwithstanding that certain execution-level R&D functions are outsourced to SMT Inc. on a contract basis.

We strongly recommend that SIP Holdings take affirmative steps to establish and document robust DEMPE activities in Ireland, including the employment of qualified IP management personnel, the conduct of regular board meetings in Ireland at which strategic IP decisions are made, and the maintenance of records demonstrating SIP Holdings' active involvement in the management, protection, and exploitation of the IP Portfolio.

3. Coordination with IRC § 367(d)

The interplay between Subpart F and the § 367(d) deemed inclusion mechanism introduces additional complexity. If § 367(d) deemed inclusions already capture the income attributable to the transferred intangibles in SMT Inc.'s US taxable income, there is a risk of double inclusion: once through the § 367(d) deemed royalty mechanism and once through the Subpart F inclusion of the actual royalties received by SIP Holdings. The Treasury Regulations under § 367(d) contain coordination provisions intended to prevent such double taxation. Specifically, Treas. Reg. § 1.367(d)-1T(c)(2)(ii) provides that, to the extent the § 367(d) deemed inclusions reflect the same economic income as the Subpart F inclusions, the taxpayer should not be required to include the same income twice. The implementation of these coordination rules requires careful analysis and documentation on a year-by-year basis.

4. Opinion — Subpart F

Based on our analysis of IRC §§ 952 and 954 and the Treasury Regulations thereunder, it is our opinion that:

Royalty income earned by SIP Holdings from the License-Back Agreement and the rest-of-world license agreements should likely constitute foreign personal holding company income under IRC § 954(c), to the extent not otherwise excluded under the active trade or business exception or other applicable provisions. The interaction between the Subpart F inclusion provisions and the § 36

CALDERWOOD & HARKNESS LLP Attorneys at Law
599 Lexington Avenue, 36th Floor New York, NY 10022 United States
Telephone: (212) 541-8800 Facsimile: (212) 541-8801 www.calderwoodharkness.com
April 10, 2024
Matter No.: 1037-00007
DRAFT — FOR PARTNER REVIEW — PRIVILEGED & CONFIDENTIAL This document constitutes attorney work product and is protected by the attorney-client privilege. It is circulated solely for internal review by the responsible partner and is not to be distributed, furnished, or disclosed to any person or entity outside Calderwood & Harkness LLP without the prior written consent of the responsible partner.
The Board of Directors Solstice Biomedical Devices Ltd. Unit 14, Corrib Technology Park Headford Road Galway, H91 XR72 Ireland
Attention: Fiona Gallagher, Chief Financial Officer Dr. Cathal Morrissey, Chief Executive Officer
Re: Should-Level Tax Opinion — Intercompany Transfer of intellectual Property Portfolio from Solstice Medical Technologies Inc. to Solstice IP Holdings Designated Activity Company and Related License-Back Arrangement
Dear Members of the Board:
I. INTRODUCTION AND SCOPE OF OPINION
Calderwood & Harkness LLP ("we," "us," or "C&H") has been engaged by Solstice Biomedical Devices Ltd. ("SBD" or the "Company"), an Irish private company limited by shares (Companies Registration Office ("CRO") No. 587241), to render a should-level tax opinion regarding the United States federal income tax and Irish tax consequences of the proposed intercompany transfer of SBD's core intellectual property portfolio from Solstice Medical Technologies Inc. ("SMT Inc."), a Delaware C-corporation (Employer Identification Number 84-3291507; Delaware Division of Corporations File No. 7482916), to Solstice IP Holdings Designated Activity Company ("SIP Holdings" or "SIPH"), an Irish designated activity company (CRO No. 714538), and the related license-back arrangement (collectively, the "Transaction").
Our engagement in this matter is governed by the engagement letter between C&H and SBD dated February 9, 2024, pursuant to which our engagement was opened on February 12, 2024, and assigned internal matter number 1037-00007. The terms and conditions set forth in that engagement letter, including limitations on our liability, are incorporated herein by reference and apply to this opinion.
Sylvia Hartwell, Partner, serves as the responsible partner for this engagement. Leonard Cross, Partner, serves as the billing partner. Leila Nazari, Senior Associate, and Robert Jansen, Associate, have assisted in the research, analysis, and preparation of this opinion.
This opinion addresses the following United States federal income tax and Irish tax issues arising in connection with the Transaction:
(a) Whether the IP transfer from SMT Inc. to SIP Holdings will be respected as a bona fide arm's-length transaction under Section 482 of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"), and the Treasury Regulations promulgated thereunder;
(b) The application of IRC § 367(d) to the outbound transfer of intangible property from SMT Inc. (a United States person) to SIP Holdings (a related foreign corporation), including the deemed royalty inclusion mechanism and the advisability of a useful-life election under Treasury Regulation § 1.367(d)-1T;
(c) Whether royalty income earned by SIP Holdings under the license-back arrangement and related group license agreements is subject to inclusion in the income of a United States shareholder as Global Intangible Low-Taxed Income ("GILTI") under IRC § 951A or constitutes Subpart F income under IRC § 952, including foreign personal holding company income ("FPHCI") under IRC § 954(c);
(d) Whether the royalty payments from SMT Inc. to SIP Holdings trigger liability under the Base Erosion and Anti-Abuse Tax ("BEAT") provisions of IRC § 59A, including the applicable taxpayer test, the base erosion percentage calculation, and the modified taxable income computation;
(e) Whether withholding tax on royalty payments from SMT Inc. to SIP Holdings is eliminated or reduced under Article 12 (Royalties) of the Convention between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the "US-Ireland Income Tax Treaty" or the "Treaty"), including analysis of the Limitation on Benefits ("LOB") provisions;
(f) Whether the intellectual property acquired by SIP Holdings qualifies as a "specified intangible asset" under Section 291A of the Taxes Consolidation Act 1997 ("TCA 1997"), thereby entitling SIP Holdings to claim capital allowances (tax depreciation) against its Irish trading income; and
(g) Whether the intercompany pricing arrangements — including the purchase price, royalty rates, cost-plus mark-up, and intercompany loan interest rate — satisfy Irish transfer pricing requirements as amended by the Finance Act 2019.
Opinion Standard. This opinion is rendered at a "should" level. The "should" standard means that we have a confidence level greater than fifty percent (50%) — that is, a "more likely than not" level of confidence — that the tax positions described herein will be sustained if properly raised and challenged by the Internal Revenue Service (the "IRS") or the Irish Revenue Commissioners (the "Revenue Commissioners"), as applicable. However, the level of confidence does not rise to a "will" or "more likely than not to a high degree of certainty" standard. The "should" standard is further described in Section V of this opinion.
II. SUMMARY OF THE TRANSACTION
A. The Parties
The following is a summary description of each of the principal entities involved in, or relevant to, the Transaction. Additional details regarding the ownership structure, governance arrangements, and capitalization of each entity are set forth in the organizational chart and constitutional documents reviewed in connection with this opinion, as described in Section III below.
Solstice Biomedical Devices Ltd. ("SBD"). SBD is an Irish private company limited by shares, incorporated and registered in Ireland under CRO No. 587241, with its registered office at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland. SBD's principal business is the design, manufacture, and distribution of minimally invasive cardiac catheter navigation systems and intra-operative imaging devices. SBD is the ultimate parent company of the Solstice group of companies (the "Group"). For the fiscal year ended December 31, 2023 ("FY2023"), SBD reported consolidated revenue of €347.6 million and consolidated EBITDA of €78.4 million (representing an EBITDA margin of approximately 22.5%). The Group employs approximately 1,640 individuals worldwide across its operations in Ireland, the United States, and other jurisdictions.
SBD's issued share capital is held as follows:
• Pinnacle Growth Equity Partners Fund III, L.P. ("Pinnacle GEP III"): 62.3% of issued ordinary shares. Pinnacle GEP III is a Delaware limited partnership with total committed capital of approximately $2.1 billion (vintage year 2019). The general partner of Pinnacle GEP III is Pinnacle Growth Equity Advisors III LLC, a Delaware limited liability company. The Managing Partner of Pinnacle Growth Equity Advisors III LLC is Jonathan Whitfield, who also serves as a member of the Board of Directors of SBD. Under the shareholders' agreement and constitutional documents of SBD, Pinnacle GEP III board approval is required for material intercompany transactions exceeding €10 million. The Transaction exceeds this threshold, and we are advised that board approval has been duly obtained.
• Dr. Cathal Morrissey (Founder & CEO): 18.4% of issued ordinary shares, held through Morrissey Family Holdings Unlimited Company (CRO No. 492103), an Irish unlimited company.
• Fiona Gallagher (CFO): 2.1% of issued ordinary shares, held directly.
• Other management and employees: The remaining 17.2% of issued ordinary shares are held by various members of SBD's management team and employees, in some cases through employee benefit trust structures.
Solstice Medical Technologies Inc. ("SMT Inc."). SMT Inc. is a Delaware C-corporation, with its principal office located at 2200 Biopharma Drive, Suite 300, Waltham, Massachusetts 02451. SMT Inc. is a wholly owned subsidiary of SBD and is the current holder of the intellectual property portfolio that is the subject of the Transaction. SMT Inc. is responsible for research and development activities, United States regulatory submissions (including submissions to the U.S. Food and Drug Administration), and North American commercial operations for the Group. For FY2023, SMT Inc. reported revenue of $189.2 million, representing approximately 50.1% of SBD's consolidated revenues at the average €1 = $1.09 exchange rate for the period. SMT Inc. employs approximately 580 individuals in the United States. SMT Inc.'s total deductions for FY2023 were $174.8 million, as reflected in its federal income tax return for that year.
Solstice IP Holdings Designated Activity Company ("SIP Holdings" or "SIPH"). SIP Holdings is an Irish designated activity company, incorporated on January 18, 2024, and registered in Ireland under CRO No. 714538, with its registered office at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland. SIP Holdings has an authorized share capital of €1,000, divided into 1,000 ordinary shares of €1.00 each, all of which have been issued and are 100% held by SBD. SIP Holdings was incorporated for the purpose of acquiring the intellectual property portfolio from SMT Inc. and holding, managing, and licensing such intellectual property to SMT Inc. and other Group entities. As a newly incorporated entity, SIP Holdings has no historical financial results.
Pinnacle Growth Equity Partners Fund III, L.P. As noted above, Pinnacle GEP III is the majority shareholder of SBD. The relevance of Pinnacle GEP III to this opinion lies in (i) the governance requirements for board approval of material intercompany transactions exceeding €10 million, which threshold is exceeded by the Transaction, and (ii) the ownership analysis relevant to the LOB provisions of the US-Ireland Income Tax Treaty. We are advised and have assumed that Pinnacle GEP III board approval has been duly obtained.
B. The IP Portfolio
The intellectual property to be transferred in the Transaction (the "IP Portfolio" or the "IP") consists of the following:
• Forty-seven (47) granted United States utility patents, covering various aspects of the Group's proprietary cardiac catheter navigation systems and intra-operative imaging technologies, including the "NaviPulse" catheter guidance platform and the "ClearVue" intra-operative cardiac imaging system;
• Twelve (12) pending United States patent applications relating to next-generation enhancements and extensions of the NaviPulse and ClearVue platforms;
• Associated trade secrets, technical know-how, engineering drawings, manufacturing process documentation, and proprietary software algorithms, in each case relating to the NaviPulse and ClearVue product lines; and
• All goodwill associated with or appurtenant to the foregoing intellectual property.
A complete list of the patents and patent applications comprising the IP Portfolio is attached hereto as Exhibit A.
An independent valuation of the IP Portfolio was performed by Whitmore Valuation Advisors LLC ("WVA"), a nationally recognized valuation firm, under project reference WVA-2023-1187. The valuation engagement was managed by Marcus Whitmore, ASA (Accredited Senior Appraiser), Managing Director of WVA. WVA issued its draft valuation report on January 29, 2024 (the "WVA Valuation Report"). The key findings and conclusions of the WVA Valuation Report are as follows:
• Valuation date: December 31, 2023.
• Fair market value: $214.5 million, determined using the income approach / Discounted cash flow ("DCF") methodology. The DCF analysis discounted the projected future economic benefits attributable to the IP Portfolio using a weighted average cost of capital ("WACC") of 13.5%, which WVA determined to be appropriate for the risk profile of the IP Portfolio based on comparable company analysis and the build-up method.
• Remaining weighted-average useful life: 12.8 years, reflecting the weighted-average remaining term of the granted patents, the expected grant dates and remaining terms of the pending applications, and the economic useful life of the associated trade secrets and know-how.
• Arm's-length royalty rate: 8.0% of net sales attributable to the licensed IP, as determined by WVA's transfer pricing benchmarking analysis using the comparable uncontrolled transaction ("CUT") method and the comparable profits method ("CPM"), also referred to as the transactional net margin method ("TNMM") under the OECD Transfer Pricing Guidelines.
For United States federal income tax purposes, SMT Inc.'s adjusted tax basis in the IP Portfolio is $11.3 million. The IP assets have been substantially fully amortized or expensed for US tax purposes over the course of SMT Inc.'s ownership. Accordingly, the built-in gain for purposes of IRC § 367(d) is calculated as follows:
Fair market value: $214,500,000 Less: Adjusted tax basis: ($11,300,000) Built-in gain: $203,200,000
A summary of the WVA valuation methodology and key assumptions is attached hereto as Exhibit C.
C. Transaction Steps
The Transaction is structured as a series of integrated steps, intended to be executed on or about March 1, 2024 (the "Effective Date"). The principal steps are as follows:
Step 1: IP Acquisition. SIP Holdings will acquire the entire IP Portfolio from SMT Inc. pursuant to the IP Assignment Agreement for a purchase price of $214.5 million, reflecting the fair market value as determined by the WVA Valuation Report. The purchase price will be funded by means of the following:
(a) An intercompany loan from SBD to SIP Holdings in the principal amount of €180.0 million (approximately $196.2 million at the spot exchange rate of €1 = $1.09 as of the Effective Date). The key terms of the intercompany loan are as follows:
• Principal amount: €180,000,000
• Term: 10 years, maturing March 1, 2034
• Interest rate: 3.75% per annum, fixed for the term (benchmarked by WVA's intercompany debt pricing analysis, which assessed the creditworthiness of SIP Holdings on a standalone basis and benchmarked the interest rate against comparable arm's-length intercompany and third-party lending transactions)
• Annual interest expense: €6,750,000 (€180,000,000 × 3.75%)
• Repayment schedule: Interest-only for years 1 through 3 (i.e., March 1, 2024 through February 28, 2027); thereafter, equal annual principal installments of approximately €25,714,286 (€180,000,000 ÷ 7) plus accrued interest, payable in years 4 through 10
• Security: Unsecured, consistent with the intercompany nature of the obligation
(b) SIP Holdings equity of €1,000 (representing the fully paid-up issued share capital of SIP Holdings) plus a shareholder capital contribution from SBD to SIP Holdings of €16.7 million (approximately $18.2 million at the €1 = $1.09 spot rate). The capital contribution, together with the intercompany loan proceeds, will provide SIP Holdings with the funds necessary to pay the $214.5 million purchase price to SMT Inc.
Step 2: Exclusive License-Back Agreement. Contemporaneously with the closing of the IP acquisition, SIP Holdings will enter into an exclusive license agreement with SMT Inc. (the "License-Back Agreement"), pursuant to which SIP Holdings will grant SMT Inc. an exclusive, non-transferable license to exploit the IP Portfolio throughout North America (the United States, Canada, and Mexico) in connection with SMT Inc.'s ongoing research, development, manufacturing, regulatory, and commercial activities. In consideration for the license, SMT Inc. will pay SIP Holdings an arm's-length royalty of 8.0% of net sales attributable to products and services incorporating or derived from the licensed IP. Based on SMT Inc.'s FY2023 revenue of $189.2 million, the projected Year 1 royalty payment under the License-Back Agreement is $15.136 million ($189.2 million × 8.0%).
Step 3: Rest-of-World License Agreements. SIP Holdings will also enter into separate license agreements with SBD and other Group entities for the exploitation of the IP Portfolio outside of North America. The royalty rates under these rest-of-world license agreements will range from 4.0% to 6.5% of net sales, depending on the territory and the value-added functions, assets, and risks assumed by the local Group entity in each jurisdiction. The differential between the North American royalty rate (8.0%) and the rest-of-world rates reflects the greater value-added contribution of the North American market, including the significant marketing, distribution, and regulatory infrastructure maintained by SMT Inc. in the United States.
Step 4: Cost-Plus R&D Services Agreement. SMT Inc. will enter into a Cost-Plus R&D Services Agreement with SIP Holdings, pursuant to which SMT Inc. will continue to perform contract research and development services for SIP Holdings in relation to the ongoing development, enhancement, and maintenance of the IP Portfolio. SMT Inc. will be compensated at cost plus a mark-up of 8.0%, reflecting the arm's-length compensation for a contract research and development service provider as benchmarked by WVA. This arrangement is intended to ensure that SIP Holdings, as the IP owner, bears the economic risk and rewards of R&D activities while compensating SMT Inc. at an arm's-length rate for the services it performs.
A diagram illustrating the Transaction structure is attached hereto as Exhibit B.
III. DOCUMENTS AND MATERIALS REVIEWED
In rendering this opinion, we have reviewed and relied upon the following documents, materials, and information:
1. Whitmore Valuation Advisors LLC draft IP valuation report dated January 29, 2024, project reference WVA-2023-1187, prepared by Marcus Whitmore, ASA, Managing Director (the "WVA Valuation Report"), including the income approach / DCF valuation of the IP Portfolio at $214.5 million with a 13.5% WACC and 12.8-year remaining weighted-average useful life;
2. WVA transfer pricing benchmarking analysis for the determination of the arm's-length royalty rate of 8.0% of net sales for the North American License-Back Agreement, utilizing the CUT method and CPM/TNMM;
3. WVA intercompany debt pricing analysis supporting the 3.75% fixed interest rate for the €180.0 million intercompany loan from SBD to SIP Holdings;
4. Organizational chart of the SBD Group, including SBD, SMT Inc., SIP Holdings, and other relevant subsidiaries and affiliates;
5. Certificate of incorporation and constitutional documents (memorandum and articles of association) of Solstice IP Holdings Designated Activity Company (CRO No. 714538, incorporated January 18, 2024);
6. Draft IP Assignment Agreement between SMT Inc. (as assignor) and SIP Holdings (as assignee), providing for the transfer of the IP Portfolio at a purchase price of $214.5 million;
7. Draft Exclusive License-Back Agreement between SIP Holdings (as licensor) and SMT Inc. (as licensee) for the exploitation of the IP Portfolio in North America at a royalty rate of 8.0% of net sales;
8. Draft rest-of-world License Agreements between SIP Holdings (as licensor) and SBD and other Group entities (as licensees) for the exploitation of the IP Portfolio outside North America at royalty rates ranging from 4.0% to 6.5% of net sales;
9. Draft Cost-Plus R&D Services Agreement between SMT Inc. (as service provider) and SIP Holdings (as service recipient) providing for contract R&D services at cost plus 8.0%;
10. Intercompany loan agreement term sheet for the €180.0 million loan from SBD to SIP Holdings (3.75% fixed interest rate, 10-year term, interest-only for years 1–3, principal amortization in years 4–10);
11. SMT Inc. United States federal income tax returns (Forms 1120) for fiscal years 2021, 2022, and 2023, together with all supporting schedules and attachments;
12. SMT Inc. US book and tax basis schedules for intellectual property assets, reflecting an adjusted tax basis of $11.3 million as of December 31, 2023;
13. SMT Inc. FY2023 total deductions schedule, reflecting total deductions of $174.8 million;
14. SBD consolidated audited financial statements for the fiscal year ended December 31, 2023, prepared by Pemberton Hale LLP (Aisling Brennan, Audit Partner), reflecting consolidated revenue of €347.6 million and consolidated EBITDA of €78.4 million;
15. Factual Assumptions and Representations Letter dated March 8, 2024, signed by Fiona Gallagher (Chief Financial Officer) and Dr. Cathal Morrissey (Chief Executive Officer) on behalf of SBD and SMT Inc. (the "Representations Letter");
16. United States Patent and Trademark Office records for the 47 granted United States utility patents and 12 pending United States patent applications comprising the IP Portfolio;
17. Correspondence and work product from Harrington & Cahill, Chartered Tax Advisors (Niamh O'Sullivan, Tax Partner) regarding Irish tax compliance matters, including Section 291A TCA 1997 capital allowance analysis and Irish transfer pricing documentation;
18. Correspondence from Dalton Byrne & Partners, Solicitors (Séamus Dalton, Managing Partner) regarding Irish corporate law and intellectual property assignment matters;
19. Correspondence from Lattimore & Stern CPAs LLP (David Lattimore, CPA) regarding SMT Inc. US federal income tax compliance matters, including historical tax return positions and deduction schedules;
20. The Convention between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the US-Ireland Income Tax Treaty), including the Technical Explanation thereof;
21. Relevant provisions of the Internal Revenue Code of 1986, as amended, including without limitation Sections 59A, 367(d), 482, 936(h)(3)(B), 951A, 952, 954, 958, 6662, and 7701, together with the Treasury Regulations promulgated thereunder and relevant IRS guidance (including revenue rulings, revenue procedures, notices, and announcements); and
22. Relevant provisions of the Taxes Consolidation Act 1997 (as amended by the Finance Act 2019 and subsequent legislation), including Section 291A (capital allowances for specified intangible assets) and the transfer pricing provisions, together with relevant Irish Revenue guidance and practice notes.
We have not undertaken any independent investigation or verification of the facts, financial data, or projections set forth in the foregoing documents, and we have assumed the accuracy and completeness of all information provided to us.
IV. FACTUAL ASSUMPTIONS AND REPRESENTATIONS
This opinion relies upon the factual representations set forth in the Representations Letter dated March 8, 2024, signed by Fiona Gallagher (Chief Financial Officer) and Dr. Cathal Morrissey (Chief Executive Officer) on behalf of SBD and SMT Inc. We have assumed, without independent verification, that each of these representations is true, correct, and complete in all material respects as of the date hereof and will remain so through the closing and implementation of the Transaction. The key representations upon which this opinion relies include the following:
(a) The purchase price of $214.5 million for the IP Portfolio reflects the fair market value of the IP Portfolio as of December 31, 2023, as independently determined by WVA using the income approach / DCF methodology with a WACC of 13.5%.
(b) The royalty rate of 8.0% of net sales under the License-Back Agreement was independently benchmarked by WVA and reflects arm's-length pricing for comparable intellectual property license transactions in the medical device industry, taking into account the functions performed, assets employed, and risks assumed by the licensor (SIP Holdings) and the licensee (SMT Inc.).
(c) SIP Holdings will have genuine economic substance in Ireland. Specifically, SIP Holdings' central management and control will be exercised in Ireland; the board of directors of SIP Holdings will hold regular meetings in Ireland and make strategic decisions regarding the IP Portfolio in Ireland; SIP Holdings will engage qualified personnel in Ireland with the skills, expertise, and authority to manage the IP Portfolio; and SIP Holdings will maintain its registered office and principal place of business at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland.
(d) The intercompany loan of €180.0 million from SBD to SIP Holdings at a fixed interest rate of 3.75% per annum was priced on arm's-length terms, as supported by WVA's intercompany debt pricing analysis, which benchmarked the interest rate against comparable arm's-length lending transactions involving borrowers with similar credit profiles and loan characteristics.
(e) The IP Portfolio has a remaining weighted-average useful life of 12.8 years, as determined by WVA based on the weighted-average remaining patent terms, the expected grant dates of pending applications, and the economic useful life of the associated trade secrets and know-how.
(f) SMT Inc.'s adjusted tax basis in the IP Portfolio, as reflected on SMT Inc.'s US federal income tax books and records, is $11.3 million as of the Effective Date. The IP assets have been substantially fully amortized or expensed for US federal income tax purposes.
(g) SMT Inc.'s total deductions for FY2023, as reported on its US federal income tax return (Form 1120), were $174.8 million.
(h) The IP Portfolio constitutes intangible property within the meaning of IRC § 936(h)(3)(B), as that term is applied under IRC § 367(d).
(i) SIP Holdings qualifies under Section 291A TCA 1997 for capital allowances on specified intangible assets, and the IP Portfolio consists of qualifying "specified intangible assets" within the meaning of that provision.
(j) Pinnacle GEP III board approval was duly obtained for the Transaction, in accordance with the governance requirements set forth in SBD's shareholders' agreement and constitutional documents.
(k) The Transaction will be executed on or about March 1, 2024 (the target Effective Date), and all steps described in Section II.C above will be implemented substantially as described therein.
(l) No elections or transactions not described in the Transaction Steps will be made or undertaken that would materially alter the US federal income tax or Irish tax consequences of the Transaction.
We have not independently verified these factual representations and have assumed them to be true, correct, and complete in all material respects. If any of these assumptions or representations are inaccurate, incomplete, or change in any material respect, our opinion could be adversely affected and may no longer be relied upon. In such event, we should be consulted promptly to determine whether the conclusions set forth herein remain valid.
V. OPINION STANDARD
This opinion is rendered at a "should" level of confidence. As used in this opinion, the term "should" means that, based on our analysis of the relevant legal authorities, factual representations, and assumptions described herein, we believe that the tax positions described in this opinion have a greater than fifty percent (50%) likelihood of being sustained on their merits if properly raised and challenged by the relevant taxing authority — that is, the IRS with respect to United States federal income tax matters, or the Irish Revenue Commissioners with respect to Irish tax matters.
The "should" standard represents a "more likely than not" level of confidence. It signifies that, in our professional judgment, the weight of the applicable legal authorities and the relevant facts and circumstances supports the tax positions described herein, and that a taxpayer adopting such positions would more likely than not prevail if the positions were examined by the relevant taxing authority and ultimately adjudicated. However, the "should" standard is below a "will" level of confidence, which would require a substantially higher degree of certainty that the positions will be sustained. The "should" standard also falls below the "substantial authority" standard and the "realistic possibility of success" standard applicable in certain penalty contexts, although we believe the positions described herein would likely satisfy those standards as well.
It is important to emphasize that this opinion does not constitute a guarantee of any particular tax outcome. The tax treatment of the Transaction will depend upon facts and circumstances that may develop after the date of this opinion, as well as the interpretation and application of the relevant tax laws, regulations, and treaties by the IRS, the Revenue Commissioners, and the courts. There can be no assurance that the IRS or the Revenue Commissioners will agree with the positions set forth herein, or that a court would sustain such positions if they were challenged.
This opinion does not address any tax consequences under United States state or local tax law (except to the extent specifically discussed herein), nor does it address tax consequences in any jurisdiction other than the United States (at the federal level) and Ireland. In particular, this opinion does not address the tax consequences of the Transaction in Canada, Mexico, or any other jurisdiction in which Group entities may operate or in which the IP Portfolio may be exploited.
VI. ANALYSIS AND OPINIONS
A. IRC § 482 — Arm's-Length Standard and Transfer Pricing
1. IP Purchase Price ($214.5 Million)
Section 482 of the Code authorizes the IRS to distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among two or more organizations, trades, or businesses owned or controlled directly or indirectly by the same interests, if it determines that such distribution, apportionment, or allocation is necessary to prevent evasion of taxes or clearly to reflect the income of any such organization, trade, or business. The standard for determining whether a controlled transaction produces results consistent with an arm's-length result is set forth in the Treasury Regulations under IRC § 482, specifically Treas. Reg. §§ 1.482-1 through 1.482-9.
For purposes of transfers of intangible property, Treas. Reg. § 1.482-4 provides guidance on the determination of arm's-length consideration. The regulations permit the use of various methods, including the comparable uncontrolled transaction method, the comparable profits method, the profit split method, and unspecified methods. The "best method" rule of Treas. Reg. § 1.482-1(c) requires that the arm's-length result be determined under the method that, given the facts and circumstances, provides the most reliable measure of an arm's-length result.
In the case of the IP acquisition, WVA utilized the income approach / Discounted cash flow methodology to determine the fair market value of the IP Portfolio. The DCF methodology projects the future economic benefits (cash flows) attributable to the IP Portfolio over its remaining weighted-average useful life of 12.8 years and discounts those projected cash flows to their present value using a WACC of 13.5%. The 13.5% WACC reflects WVA's assessment of the appropriate risk-adjusted discount rate for the IP Portfolio, taking into account the cost of equity and cost of debt for comparable publicly traded medical device companies, the specific risk characteristics of the NaviPulse and ClearVue product lines, and the company-specific risk premium associated with SBD's market position and competitive environment.
The WVA Valuation Report valued the IP Portfolio at $214.5 million as of December 31, 2023. This valuation encompasses the 47 granted US utility patents, the 12 pending US patent applications, and the associated trade secrets, know-how, engineering drawings, manufacturing process documentation, and proprietary software algorithms. We have reviewed the WVA Valuation Report and believe that the methodology employed is consistent with the valuation methods recognized under Treas. Reg. § 1.482-4 and generally accepted valuation principles. We have not, however, independently verified the financial projections, discount rate assumptions, or comparable transaction data underlying the WVA analysis.
A critical consideration in the IRC § 482 analysis is the "commensurate with income" standard, which was added to IRC § 482 by the Tax Reform Act of 1986. Under this standard, the consideration charged in a controlled transaction involving the transfer of intangible property must be commensurate with the income attributable to the intangible. This requirement applies not only at the time of the initial transfer but on an ongoing basis: the IRS retains the authority to make periodic adjustments to the consideration if actual income from the transferred intangibles materially deviates from the income that was projected at the time of the transfer. Treas. Reg. § 1.482-4(f)(2) provides specific guidance on when periodic adjustments may be required, including a "comparable intangible property" safe harbor and an "extraordinary events" exception.
The $214.5 million purchase price is based on income projections that, by their nature, are forward-looking and subject to uncertainty. If SMT Inc.'s actual revenue or profitability attributable to the IP Portfolio materially exceeds or falls short of the projections underlying the WVA valuation, the IRS may seek to adjust the purchase price or the royalty rate under the commensurate-with-income standard. We recommend that the Company implement a process for ongoing monitoring of actual results against the projections and maintain contemporaneous documentation sufficient to demonstrate that the pricing remains arm's-length over time.
2. License-Back Royalty Rate (8.0% of Net Sales)
The License-Back Agreement provides for an arm's-length royalty of 8.0% of net sales attributable to products and services incorporating or derived from the licensed IP, payable by SMT Inc. to SIP Holdings. Based on SMT Inc.'s FY2023 revenue of $189.2 million, the projected Year 1 royalty payment is $15.136 million ($189.2 million × 8.0%).
WVA determined the 8.0% royalty rate through a benchmarking analysis utilizing the comparable uncontrolled transaction ("CUT") method and the comparable profits method ("CPM"), also referred to as the transactional net margin method ("TNMM"). The CUT method identifies comparable arm's-length license transactions involving similar intellectual property in the medical device and life sciences industries and compares the royalty rates charged in those transactions to the royalty rate proposed for the License-Back Agreement. The CPM/TNMM evaluates the net profit margins earned by comparable companies performing functions similar to those of SMT Inc. (i.e., as a licensed distributor and service provider) to determine whether SMT Inc. retains an arm's-length level of profitability after payment of the royalty.
In evaluating the arm's-length nature of the 8.0% royalty rate, we have considered the functions performed, assets employed, and risks assumed by each party to the License-Back Agreement. SMT Inc. performs significant value-added functions in North America, including research and development, regulatory submissions, manufacturing, marketing, and distribution. SMT Inc. employs approximately 580 individuals and maintains substantial tangible assets, including laboratory and manufacturing equipment, in Waltham, Massachusetts. SIP Holdings, as the IP owner, bears the economic risk and rewards of IP ownership, including the risk of technological obsolescence, competitive displacement, and regulatory changes, and is responsible for the strategic management and exploitation of the IP Portfolio.
The rest-of-world royalty rates ranging from 4.0% to 6.5% of net sales provide additional evidence supporting the arm's-length nature of the North American royalty rate. The differential between the North American rate (8.0%) and the rest-of-world rates reflects the greater concentration of value-added functions, market-specific intangible value, and competitive advantages associated with the North American market. This territorial differentiation is consistent with the arm's-length principle as articulated in Treas. Reg. § 1.482-1(b)(1) and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
As with the purchase price, the royalty rate is subject to the commensurate-with-income standard. If actual revenues and profitability of SMT Inc. change materially, the IRS may assert that the 8.0% royalty rate is no longer arm's-length and seek to adjust it. We recommend that the Company maintain contemporaneous transfer pricing documentation, including annual updates to the benchmarking analysis, to demonstrate ongoing compliance with the arm's-length standard.
3. Cost-Plus R&D Services Agreement (Cost + 8.0%)
Under the Cost-Plus R&D Services Agreement, SMT Inc. will continue to perform contract research and development services for SIP Holdings at cost plus a mark-up of 8.0%. This arrangement reflects the fact that, following the IP transfer, SIP Holdings will be the owner of the IP and the principal with respect to R&D activities, while SMT Inc. will serve as a contract R&D service provider. The cost-plus mark-up of 8.0% is intended to compensate SMT Inc. at an arm's-length rate for the services it performs, taking into account the functions, assets, and risks retained by SMT Inc. in its capacity as a contract service provider (which are more limited than those it bore as the IP owner).
SMT Inc. retains its approximately 580 employees, including research scientists, engineers, and regulatory specialists, who will perform the R&D services on behalf of SIP Holdings. The 8.0% mark-up is consistent with the range of mark-ups observed in comparable arm's-length contract R&D services arrangements in the medical device and life sciences industries, as benchmarked by WVA.
We have reviewed the proposed Cost-Plus R&D Services Agreement and the WVA benchmarking analysis supporting the 8.0% mark-up, and we believe the terms are consistent with the arm's-length standard under Treas. Reg. §§ 1.482-4 and 1.482-9.
4. Intercompany Loan Pricing (€180.0 Million at 3.75%)
The intercompany loan from SBD to SIP Holdings in the principal amount of €180.0 million bears a fixed interest rate of 3.75% per annum. WVA's intercompany debt pricing analysis supports this interest rate as arm's-length, based on a comparison to interest rates observed in comparable arm's-length lending transactions involving borrowers with credit profiles and loan characteristics similar to those of SIP Holdings, considered as a standalone entity. The analysis took into account the creditworthiness of SIP Holdings (including its projected cash flows from royalty income, its capitalization, and its asset base), the tenor and repayment terms of the loan, the absence of third-party security, and prevailing market interest rates for euro-denominated loans as of the Effective Date.
The annual interest expense of €6.75 million (€180.0 million × 3.75%) represents the consideration charged for the use of the loan proceeds. The repayment schedule — interest-only for years 1 through 3, followed by equal annual principal installments of approximately €25.71 million plus interest in years 4 through 10 — is consistent with commercial lending practices for similar intercompany financing arrangements.
Under Treas. Reg. § 1.482-2(a), the IRS may adjust the interest rate charged in a controlled financing transaction if it does not reflect an arm's-length rate. We believe the 3.75% fixed rate, as supported by the WVA intercompany debt pricing analysis, is within the range of arm's-length rates for comparable transactions.
5. Opinion — IRC § 482
Based on our review of the WVA Valuation Report, the WVA benchmarking analyses, the terms of the draft transaction agreements, and the applicable provisions of IRC § 482 and the Treasury Regulations thereunder, it is our opinion that:
The $214.5 million purchase price for the IP Portfolio and the 8.0% royalty rate under the License-Back Agreement should satisfy the arm's-length standard under IRC § 482, including the "commensurate with income" requirement of IRC § 482 as applied under Treas. Reg. § 1.482-4(f)(2), based on the WVA valuation and benchmarking analysis.
We note, however, that the IRS retains the authority to make periodic adjustments under the commensurate-with-income standard if actual results materially diverge from the projections underlying the WVA valuation. We recommend that the Company implement ongoing monitoring procedures and maintain contemporaneous transfer pricing documentation in accordance with IRC § 6662(e) and Treas. Reg. § 1.6662-6 to support the arm's-length nature of the Transaction pricing on an annual basis.
B. IRC § 367(d) — Outbound Transfer of Intangible Property
1. Application of IRC § 367(d)
Section 367(d) of the Code provides a special rule for the treatment of outbound transfers of intangible property from a United States person to a foreign corporation in connection with certain nonrecognition exchanges. Under IRC § 367(d)(1), if a United States person transfers intangible property (as defined in IRC § 936(h)(3)(B)) to a foreign corporation in an exchange described in IRC § 332, 351, 354, 356, or 361, the transferor is treated as having sold the intangible property in exchange for payments that are contingent upon the productivity, use, or disposition of the property, and the transferor must include in income amounts that are commensurate with the income attributable to the transferred intangible over its useful life.
The intangible property subject to IRC § 367(d) includes, inter alia, patents, inventions, formulae, processes, designs, patterns, know-how, copyrights, trademarks, trade names, and other items described in IRC § 936(h)(3)(B). The IP Portfolio — consisting of 47 granted US utility patents, 12 pending US patent applications, and associated trade secrets, technical know-how, engineering drawings, manufacturing process documentation, and proprietary software algorithms — constitutes intangible property within the meaning of IRC § 936(h)(3)(B).
The transfer from SMT Inc. (a Delaware C-corporation and United States person) to SIP Holdings (a foreign corporation organized under the laws of Ireland) triggers the application of IRC § 367(d). SIP Holdings is a related foreign corporation for purposes of § 367(d), as it is 100% owned by SBD, which in turn owns 100% of the stock of SMT Inc. (both directly through the share capital and indirectly through the corporate chain of ownership). Under the constructive ownership rules of IRC § 318 (as modified by IRC § 958(b)), SMT Inc. and SIP Holdings are under common ownership and control.
The built-in gain in the IP Portfolio for purposes of IRC § 367(d) is $203.2 million, calculated as the excess of the $214.5 million fair market value over the $11.3 million adjusted tax basis.
Under the deemed royalty mechanism of IRC § 367(d), SMT Inc. is treated as receiving annual payments contingent on the productivity, use, or disposition of the transferred intangibles. These deemed payments are included in SMT Inc.'s gross income and are taxed as ordinary income. The amount of the deemed annual payments is determined by applying the commensurate-with-income standard, which requires that the inclusions be commensurate with the income attributable to the transferred intangibles.
2. Useful-Life Election
Treasury Regulation § 1.367(d)-1T(c)(3) provides that a US transferor may elect to treat the deemed payments as being received over the useful life of the transferred intangible, rather than over an indefinite period. Under this election, the deemed annual inclusions are spread over the remaining useful life of the intangible, as determined at the time of the transfer. If no useful-life election is made, the deemed inclusions continue indefinitely (for so long as the transferred intangible generates income), which creates uncertainty regarding the total amount and duration of the inclusions.
In the case of the IP Portfolio, the remaining weighted-average useful life is 12.8 years, as determined by the WVA Valuation Report. If the useful-life election is made, the deemed annual inclusions under IRC § 367(d) would be determined over this 12.8-year period, providing a finite recognition period and greater certainty regarding the total amount of income that SMT Inc. will be required to include.
The advantages of making the useful-life election include: (i) the recognition period is finite (12.8 years), which provides greater predictability for tax planning and financial reporting purposes; (ii) the total deemed inclusions over the useful life period are more readily quantifiable; and (iii) the useful-life election aligns the deemed inclusion period with the period over which the IP is expected to generate economic benefits.
The principal consideration against the useful-life election is that, if actual income from the transferred intangibles exceeds the projections underlying the WVA valuation, additional inclusions may be required under the commensurate-with-income rules. Additionally, once the useful-life election is made, it is generally irrevocable.
On balance, we believe the useful-life election is advisable and recommend that SMT Inc. make the election in connection with the filing of its US federal income tax return for the taxable year in which the transfer occurs.
3. Interplay Between § 367(d) Deemed Inclusions and License-Back Royalties
The interaction between the deemed royalty inclusions under IRC § 367(d) and the actual royalty payments received by SIP Holdings under the License-Back Agreement presents a significant area of complexity. Under Treas. Reg. § 1.367(d)-1T(c)(2), the deemed inclusions are treated as if the US transferor had sold the intangible for a series of payments contingent on productivity. These amounts are included in SMT Inc.'s income regardless of the separate royalty flow from SMT Inc. to SIP Holdings under the License-Back Agreement.
There is a potential for economic double inclusion in the following sense: (a) SMT Inc. includes the deemed royalty amounts under § 367(d); (b) SMT Inc. also pays actual royalties to SIP Holdings under the License-Back Agreement, which are deductible to SMT Inc. but are included in SIP Holdings' income and may be subject to GILTI inclusion under IRC § 951A or Subpart F inclusion under IRC § 952 in the hands of a United States shareholder of SIP Holdings. The coordination of these overlapping provisions is critical to ensuring that the Transaction does not result in actual double taxation.
Under Treas. Reg. § 1.367(d)-1T(c)(2)(ii), the IRS has acknowledged the potential for overlap and has provided certain coordination mechanisms. To the extent that the actual royalty payments from SMT Inc. to SIP Holdings are treated as arm's-length consideration for the use of the intangible property, the deemed inclusions under § 367(d) should be coordinated with (and, in appropriate circumstances, offset by) the actual royalty deductions taken by SMT Inc. The specific mechanics of this coordination are complex and fact-dependent, and we recommend that SMT Inc. and its return preparers at Lattimore & Stern CPAs LLP carefully implement the coordination provisions in filing SMT Inc.'s federal income tax returns.
4. Opinion — IRC § 367(d)
Based on our analysis of IRC § 367(d) and the Treasury Regulations thereunder, it is our opinion that:
The deemed royalty inclusions under IRC § 367(d) arising from the transfer of the IP Portfolio from SMT Inc. to SIP Holdings should be properly calculated based on the $203.2 million built-in gain and the 12.8-year remaining weighted-average useful life (assuming the useful-life election under Treas. Reg. § 1.367(d)-1T(c)(3) is made). We recommend that SMT Inc. make the useful-life election. The deemed annual inclusions should be coordinated with the actual royalty deductions taken by SMT Inc. under the License-Back Agreement, subject to proper implementation of the coordination provisions under the applicable Treasury Regulations, such that actual double taxation should be avoided.
C. IRC § 951A — Global Intangible Low-Taxed Income (GILTI)
1. GILTI Framework
Section 951A of the Code, enacted by the Tax Cuts and Jobs Act of 2017, requires each "United States shareholder" of a "controlled foreign corporation" ("CFC") to include in gross income its "global intangible low-taxed income" for the taxable year. GILTI is generally calculated as the excess of a US shareholder's "net CFC tested income" over its "net deemed tangible income return" (defined as 10% of the US shareholder's pro rata share of the "qualified business asset investment" ("QBAI") of its CFCs, reduced by certain interest expense).
SIP Holdings is a CFC within the meaning of IRC § 957(a). SIP Holdings is 100% owned by SBD, an Irish company. SMT Inc. is a US subsidiary of SBD. Under the constructive ownership rules of IRC § 958, particularly § 958(b) (which applies the constructive ownership rules of IRC § 318 with certain modifications), the question arises whether SMT Inc. is a "United States shareholder" of SIP Holdings within the meaning of IRC § 951(b). A United States shareholder is defined as a United States person who owns (directly, indirectly, or constructively under § 958) 10% or more of the total combined voting power or value of all classes of stock of a foreign corporation.
Prior to the repeal of the so-called "downward attribution" limitation by the Tax Cuts and Jobs Act, stock owned by a foreign person was not attributed downward to a US subsidiary for purposes of determining US shareholder status. However, following the repeal of the former IRC § 958(b)(4) for taxable years of foreign corporations beginning after December 31, 2017, stock of SIP Holdings owned by SBD (a foreign person) may be attributed downward to SMT Inc. (a US subsidiary) for purposes of determining whether SMT Inc. is a United States shareholder of SIP Holdings. Under this analysis, SMT Inc. would constructively own 100% of SIP Holdings through its parent SBD, and SIP Holdings would be a CFC with respect to which SMT Inc. is a United States shareholder.
The royalty income earned by SIP Holdings from the License-Back Agreement and from the rest-of-world license agreements would constitute "tested income" under IRC § 951A(c)(2)(A), to the extent such income is not otherwise excluded from tested income (e.g., under the high-tax exclusion or as income effectively connected with a US trade or business).
2. QBAI Exception
Under the GILTI computation, a US shareholder's GILTI inclusion is reduced by the "net deemed tangible income return," which is calculated as 10% of the US shareholder's pro rata share of the aggregate QBAI of its CFCs. QBAI is defined as the average of the aggregate adjusted bases (determined under the alternative depreciation system of IRC § 168(g)) of the depreciable tangible property used by the CFC in its trade or business.
SIP Holdings is an intellectual property holding entity. Its tangible asset base is expected to be minimal, consisting primarily of office equipment, furniture, and information technology infrastructure at its Galway office. The value of such tangible depreciable assets is not expected to be significant relative to the royalty income generated by SIP Holdings. Accordingly, the QBAI exception is unlikely to provide meaningful relief from GILTI inclusions.
3. High-Tax Exclusion
Section 951A(c)(2)(A)(i)(III) and Treas. Reg. § 1.951A-2(c)(7) provide for a "high-tax exclusion" from GILTI tested income. Under this exclusion, a CFC's tested income is excluded from the GILTI computation if the effective rate of foreign income tax imposed on such income exceeds 90% of the maximum US corporate tax rate. For purposes of this analysis, the maximum US corporate tax rate is 21%, and 90% thereof is 18.9%.
The question is whether SIP Holdings' effective Irish tax rate on its royalty income exceeds 18.9%. Ireland's standard corporation tax rate on trading income is 12.5%. However, the effective rate of Irish tax on SIP Holdings' royalty income will be reduced by the Section 291A TCA 1997 capital allowances available on the cost of acquiring the IP Portfolio. As discussed in Section VI.G below, SIP Holdings is expected to claim annual capital allowances of approximately €13.12 million against its Irish trading income. The effect of these capital allowances is to reduce SIP Holdings' Irish taxable income, thereby reducing its effective Irish tax rate below the statutory 12.5% rate.
For illustrative purposes, if SIP Holdings' projected Year 1 royalty income is approximately $15.136 million from SMT Inc. alone (plus additional royalty income from rest-of-world licensees), and the Section 291A capital allowance is approximately €13.12 million (approximately $14.3 million at the €1 = $1.09 rate), the capital allowance would shelter a substantial portion of SIP Holdings' Irish taxable income, potentially resulting in an effective Irish tax rate well below 18.9%. Consequently, the high-tax exclusion may not be available.
We note, however, that the high-tax exclusion analysis must be performed on a tested-unit basis under Treas. Reg. § 1.951A-2(c)(7)(ii), and the effective rate calculation depends on the aggregate amount of royalty income from all sources, the timing and amount of the capital allowances, and any other Irish tax deductions available to SIP Holdings. This analysis should be updated annually as actual financial results become available.
4. Opinion — GILTI
Based on our analysis of IRC § 951A and the Treasury Regulations thereunder, it is our opinion that:
Royalty income earned by SIP Holdings under the License-Back Agreement and the rest-of-world license agreements should constitute tested income subject to GILTI inclusion under IRC § 951A, to the extent not otherwise excluded under the high-tax exclusion or other applicable provisions. The QBAI exception is unlikely to provide significant relief from GILTI inclusions, given SIP Holdings' limited tangible depreciable asset base. The availability of the high-tax exclusion will depend on SIP Holdings' effective Irish tax rate after taking into account Section 291A TCA 1997 capital allowances and other Irish tax deductions, and should be evaluated on an annual basis.
D. IRC § 952 — Subpart F Income
1. Foreign Personal Holding Company Income (FPHCI)
Under IRC § 952(a), the Subpart F income of a CFC includes, among other items, the CFC's "foreign personal holding company income" as defined in IRC § 954(c). FPHCI includes, inter alia, royalties (including royalties from the licensing of intellectual property), unless an exception applies. IRC § 954(c)(1)(A) broadly defines FPHCI to include "dividends, interest, royalties, rents, and annuities."
The royalty income earned by SIP Holdings from SMT Inc. under the License-Back Agreement, and from SBD and other Group entities under the rest-of-world license agreements, falls squarely within the statutory definition of FPHCI. Absent the application of an exception, such royalty income would constitute Subpart F income includible in the income of SIP Holdings' United States shareholder (i.e., SMT Inc., through constructive ownership) under IRC § 951(a).
2. Same-Country Exception and Active Business Exception
Several potential exceptions to the FPHCI classification merit consideration. First, the "same-country exception" under IRC § 954(c)(3) excludes from FPHCI certain royalties received from a related person organized in the same country as the CFC. This exception is not applicable to the royalty payments from SMT Inc. (a US corporation) to SIP Holdings (an Irish entity), as the payor and the payee are organized in different countries. Nor is it applicable to royalties received from Group entities organized in jurisdictions other than Ireland.
Second, the "active trade or business" or "active licensing" exception may be relevant. Under IRC § 954(c)(2)(A), royalties derived in the active conduct of a trade or business are excluded from FPHCI. To qualify for this exception, the CFC must demonstrate that it is engaged in the active conduct of a trade or business and that the royalty income is derived in connection with that active trade or business. In the context of intellectual property licensing, this generally requires the CFC to perform significant management, development, enhancement, maintenance, protection, and exploitation ("DEMPE") functions with respect to the licensed IP, using its own employees, resources, and expertise.
Whether SIP Holdings can satisfy the active trade or business exception will depend on the extent and nature of the DEMPE activities it performs in Ireland. The Cost-Plus R&D Services Agreement provides that SMT Inc. will continue to perform contract R&D services for SIP Holdings, which may raise questions about whether SIP Holdings (as opposed to SMT Inc.) is truly performing the development and enhancement functions. However, if SIP Holdings exercises strategic control and decision-making authority over the direction, prioritization, and budget allocation of R&D activities — and if SIP Holdings employs qualified personnel in Ireland with the expertise to manage the IP Portfolio — then SIP Holdings may be able to demonstrate that it is engaged in an active trade or business with respect to the IP, notwithstanding that certain execution-level R&D functions are outsourced to SMT Inc. on a contract basis.
We strongly recommend that SIP Holdings take affirmative steps to establish and document robust DEMPE activities in Ireland, including the employment of qualified IP management personnel, the conduct of regular board meetings in Ireland at which strategic IP decisions are made, and the maintenance of records demonstrating SIP Holdings' active involvement in the management, protection, and exploitation of the IP Portfolio.
3. Coordination with IRC § 367(d)
The interplay between Subpart F and the § 367(d) deemed inclusion mechanism introduces additional complexity. If § 367(d) deemed inclusions already capture the income attributable to the transferred intangibles in SMT Inc.'s US taxable income, there is a risk of double inclusion: once through the § 367(d) deemed royalty mechanism and once through the Subpart F inclusion of the actual royalties received by SIP Holdings. The Treasury Regulations under § 367(d) contain coordination provisions intended to prevent such double taxation. Specifically, Treas. Reg. § 1.367(d)-1T(c)(2)(ii) provides that, to the extent the § 367(d) deemed inclusions reflect the same economic income as the Subpart F inclusions, the taxpayer should not be required to include the same income twice. The implementation of these coordination rules requires careful analysis and documentation on a year-by-year basis.
4. Opinion — Subpart F
Based on our analysis of IRC §§ 952 and 954 and the Treasury Regulations thereunder, it is our opinion that:
Royalty income earned by SIP Holdings from the License-Back Agreement and the rest-of-world license agreements should likely constitute foreign personal holding company income under IRC § 954(c), to the extent not otherwise excluded under the active trade or business exception or other applicable provisions. The interaction between the Subpart F inclusion provisions and the § 36

CALDERWOOD & HARKNESS LLP Attorneys at Law

I. INTRODUCTION AND SCOPE OF OPINION

II. SUMMARY OF THE TRANSACTION

III. DOCUMENTS AND MATERIALS REVIEWED

IV. FACTUAL ASSUMPTIONS AND REPRESENTATIONS

V. OPINION STANDARD

VI. ANALYSIS AND OPINIONS

Record

Parties

Dates

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