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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP Tax Department

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I. Executive Summary

This memorandum addresses the principal United States federal, United Kingdom, German, and Indian tax considerations arising from the anticipated post-closing corporate restructuring of Cloudium Technologies plc ("Cloudium" or the "Company") and its subsidiaries following the closing of the reverse triangular merger on July 9, 2024 (the "Closing Date"). The purpose of this memorandum is to provide the Solara deal team and Calderwood & Harkness's M&A practice group with a comprehensive analysis of the tax implications associated with each phase of the proposed integration plan, and to identify risks, planning opportunities, and sequencing considerations that should inform the execution timeline.

As the recipients are aware, the acquisition was structured as a reverse triangular merger under the Delaware General Corporation Law ("DGCL"), pursuant to which Stratos Merger Sub Inc. ("Merger Sub"), a Delaware corporation and wholly owned subsidiary of Solara Digital Infrastructure Fund VI LP ("Fund VI"), merged with and into Cloudium Technologies plc, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI. The aggregate deal value was approximately $6,800,000,000, reflecting per-share cash consideration of approximately $36.92 per Cloudium ordinary share. The transaction was priced at a last-twelve-months ("LTM") EBITDA multiple of approximately 16.8x based on the Company's LTM EBITDA of approximately $405,000,000. The acquisition was funded in part through a $3,740,000,000 Term Loan B facility (SOFR + 325 basis points, maturing July 9, 2031) and a $500,000,000 Revolving Credit Facility (SOFR + 275 basis points, undrawn at closing), with the balance funded through equity contributions from Fund VI, its limited partners, and co-investment vehicles.

The key restructuring objectives driving the analysis in this memorandum are as follows:

(a) Re-domestication of Cloudium plc from a company incorporated in England and Wales to a United States (Delaware) corporation ("Cloudium Inc."), in order to simplify the corporate structure, align the holding company jurisdiction with the principal equity investors, and facilitate efficient capital repatriation;

(b) Rationalization of the subsidiary structure, including the elimination of redundant holding entities and the alignment of legal entity structure with the post-acquisition operating model;

(c) Migration of certain intellectual property assets currently held by Cloudium Technologies UK Ltd. ("Cloudium UK") and Cloudium Solutions GmbH ("Cloudium Germany") to a US-based or tax-efficient holding entity, in order to centralize ownership of globally deployed technology and optimize the group's effective tax rate;

(d) Establishment of appropriate intercompany agreements to govern the provision of services, licensing of technology, and allocation of costs among the restructured entities on arm's-length terms; and

(e) Alignment of transfer pricing policies with the post-acquisition operating model, including updated benchmarking studies and contemporaneous documentation designed to withstand scrutiny by taxing authorities in all relevant jurisdictions.

This memorandum should be read in conjunction with the following prior analyses prepared in connection with the Cloudium acquisition, copies of which are maintained in the matter file:

• Tax Structuring Memorandum (Section 368 Analysis), dated November 1, 2023;

• UK Tax Implications Memorandum, dated December 12, 2023;

• Purchase Price Allocation Methodology Memorandum, dated June 15, 2024; and

• Tax Memorandum — Deductibility of Transaction Costs, dated June 20, 2024.

This memorandum has been prepared in coordination with Glenmore Thornton LLP, specifically Richard Okamura (Lead Partner, Transaction Tax) and Vanessa Liu (Lead Partner, Financial Due Diligence), who have provided input on the purchase price allocation methodology, transfer pricing benchmarking considerations, and certain financial due diligence findings that inform the restructuring analysis. Unless otherwise indicated, all dollar amounts in this memorandum are expressed in United States dollars, and all tax rate references are current as of the date of this memorandum.

II. Post-Closing Corporate Structure — Current State

A. Overview of Current Group Structure Following Closing

Following the closing of the reverse triangular merger on July 9, 2024, the Cloudium group's ultimate ownership structure is as follows:

Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership (the general partner of which is Solara Fund VI GP LLC, a Delaware limited liability company), owns 100% of the issued and outstanding share capital of Cloudium Technologies plc, the surviving corporation of the reverse triangular merger. Cloudium Technologies plc remains incorporated in England and Wales under Company No. 09734521 and has been assigned US Employer Identification Number 83-2196754 for US federal income tax reporting purposes. As noted in our prior Section 368 Analysis, Cloudium Technologies plc is treated as a corporation for US federal income tax purposes and has historically filed US tax returns as a domestic corporation due to its prior "check-the-box" election on Form 8832.

In addition to Fund VI's direct ownership, certain rollover equity participants hold equity interests in the surviving entity structure as follows:

• Jonathan Hargrove (Chief Executive Officer of Cloudium) rolled over approximately $142,814,544 in equity value, representing 50% of his pre-closing holdings of 7,736,400 Cloudium ordinary shares. Mr. Hargrove's rollover equity is held as a direct equity interest in the surviving entity alongside Fund VI's equity, subject to the terms of the Management Equity Plan and related agreements.

• Pinnacle Growth Ventures LLC rolled over approximately $473,241,408 in equity value, representing 60% of its pre-closing holdings of 21,367,200 Cloudium ordinary shares. Pinnacle's rollover equity is held on substantially similar economic terms to Fund VI's equity interest, subject to certain tag-along and drag-along rights as specified in the Shareholders' Agreement dated July 9, 2024.

Additionally, Solara Digital Co-Invest VI-A LP, a Delaware limited partnership, made a co-investment of $425,000,000 alongside Fund VI, representing a subset of the total equity contribution to the acquisition. The co-invest vehicle participates pari passu with Fund VI in the economics of the investment, subject to different fee and carry arrangements as between the co-invest limited partners and the general partner.

B. Subsidiary Entities

Cloudium Technologies plc owns, directly or indirectly, the following material operating subsidiaries, each of which is relevant to the post-closing integration tax analysis:

Cloudium Technologies UK Ltd. Cloudium Technologies UK Ltd. is a private limited company incorporated in England and Wales under Company No. 11287456, with its registered office at 45 Broadwick Street, London W1F 0DB. Cloudium UK is wholly owned by Cloudium Technologies plc. The entity employs approximately 1,200 individuals across offices in London and Manchester, including the Company's principal product development team, a significant portion of its EMEA-focused sales and customer success organization, and certain corporate functions. For the fiscal year ended September 30, 2023, Cloudium UK reported revenue of approximately £312,000,000 (approximately $390,000,000 at an exchange rate of $1.25 per pound sterling).

Critically for purposes of this memorandum, Cloudium UK holds material intangible assets, including (i) certain proprietary software intellectual property, including core ERP and CRM platform code modules and SaaS architecture components originally developed by the UK development team, (ii) customer relationships attributable to the EMEA region, and (iii) trade names and associated goodwill developed in the UK market. The existence and magnitude of these UK-held intangible assets are central to the IP migration analysis set forth in Section III.B below.

Cloudium Technologies India Pvt. Ltd. Cloudium Technologies India Pvt. Ltd. ("Cloudium India") is a private limited company incorporated in Bangalore, Karnataka, India. Cloudium India is wholly owned by Cloudium Technologies plc. The entity employs approximately 2,400 individuals, the majority of whom are engaged in research and development activities (including software engineering, quality assurance, and platform testing) and customer support operations. Cloudium India operates primarily as a captive service center, providing services exclusively to the Cloudium group under intercompany service agreements. Cloudium India does not independently own material intellectual property; rather, it provides development services on a cost-plus basis, with all resulting IP owned by the commissioning entity (historically, Cloudium UK or Cloudium plc).

Cloudium Solutions GmbH. Cloudium Solutions GmbH ("Cloudium Germany") is a limited liability company (Gesellschaft mit beschränkter Haftung) incorporated in Berlin, Germany. Cloudium Germany is wholly owned by Cloudium Technologies plc. The entity employs approximately 400 individuals, primarily engaged in sales, customer success, and localization activities for the DACH region (Germany, Austria, and Switzerland). Cloudium Germany holds certain intangible assets that are specific to the DACH market, including localized software adaptations, German-language customer documentation, and local customer contracts and relationships. While the value of these assets is substantially less than the UK-held IP, the German "function relocation" (Funktionsverlagerung) rules create potentially significant tax exposure in connection with any migration of these assets, as discussed in detail in Section III.C below.

C. Existing Intercompany Arrangements

Prior to the closing, the Cloudium group operated under a set of intercompany agreements that governed the provision of services, the allocation of costs, and the licensing of intellectual property among the parent and its subsidiaries. Based on our review of the existing intercompany documentation (copies of which were provided during the due diligence process and are maintained in the data room), the pre-closing arrangements may be summarized as follows:

• Cloudium UK and Cloudium plc operated under an intercompany service agreement pursuant to which Cloudium UK provided certain technology development, sales support, and corporate services to the parent entity, with costs allocated on a basis that appears to have been designed to approximate an arm's-length charge, though the documentation supporting the pricing methodology is limited.

• Cloudium UK and Cloudium Germany had in place a cost-sharing arrangement under which certain development costs for the SaaS platform were allocated between the two entities based on anticipated benefit. Cloudium Germany also licensed certain platform technology from Cloudium UK under a license agreement that provided for royalty payments based on a percentage of net revenue attributable to the DACH market.

• Cloudium UK and Cloudium Germany each retained significant intangible value from self-developed intellectual property. The historical retention of IP ownership at the subsidiary level reflects the organic growth of the Cloudium business, in which the UK entity served as the primary development hub and the German entity developed localized adaptations independently or through co-development with the UK team.

• Cloudium India operated under a cost-plus service arrangement for the provision of R&D and customer support services, with a mark-up of approximately 12% over total operating costs. As discussed in Section IV.E below, this mark-up is at the lower end of the range that would be expected by the Indian tax authorities based on current benchmarking data for comparable IT-enabled service providers.

A critical finding from the tax due diligence process is that the existing intercompany agreements are, in certain respects, outdated, insufficiently documented, and may not fully reflect the arm's-length standard. The post-closing restructuring presents an opportunity — and, in our view, a necessity — to replace these legacy arrangements with a comprehensive, defensible intercompany framework that is consistent with the OECD Transfer Pricing Guidelines and the domestic transfer pricing rules of each relevant jurisdiction.

III. Proposed Restructuring Steps

The proposed post-closing restructuring consists of five principal steps, each of which is discussed in detail below. The sequencing and timing of these steps is addressed in Section XI. We emphasize that the tax analysis set forth below is preliminary in certain respects, and that certain determinations (including the final values assigned to intangible assets, the precise mechanics of the re-domestication, and the specific terms of the intercompany agreements) will depend on further analysis and the completion of workstreams currently in progress, including the finalization of the purchase price allocation and the engagement of an independent valuation firm.

A. Step 1: Re-Domestication of Cloudium plc to Cloudium Inc.

1. Overview and Business Rationale. The first and most structurally significant step in the proposed restructuring is the conversion of Cloudium Technologies plc from an English public limited company registered in England and Wales to a Delaware corporation ("Cloudium Inc."). The re-domestication is motivated by several considerations, including: (i) the simplification of the group's corporate governance structure by eliminating the complexities of maintaining a UK-incorporated entity as the direct subsidiary of a US-based private equity fund; (ii) the alignment of the principal holding company's jurisdiction of incorporation with the jurisdiction of the controlling equity investors and the majority of the group's economic activity; (iii) the facilitation of tax-efficient capital repatriation from the operating subsidiaries through the US parent; and (iv) the creation of a more conventional organizational structure for purposes of the group's debt instruments, investor reporting, and any future exit transaction.

2. Mechanics. The re-domestication may be accomplished through several alternative mechanisms, each of which carries different legal and tax implications:

Option A: Cross-Border Conversion. Under the UK Companies Act 2006 (as amended), it may be possible to effect a cross-border conversion of Cloudium plc into a Delaware corporation, depending on the availability of such a procedure under both English law and Delaware law. The feasibility of this approach must be confirmed with UK solicitors. We understand that Albright & Kerr LLP (Fiona McAllister) has been engaged to advise on the English law aspects of the restructuring, and we recommend that this question be addressed as an early priority.

Option B: Merger into a New Delaware Entity. Alternatively, the re-domestication could be structured as a merger of Cloudium plc with and into a newly formed Delaware corporation ("New Cloudium Inc."), with New Cloudium Inc. surviving the merger and succeeding to all of the assets, liabilities, and operations of Cloudium plc. This approach is more familiar under Delaware law and provides a well-established legal framework for the transfer of assets and liabilities, but may have different tax consequences than a cross-border conversion.

Option C: Deemed Liquidation and Reincorporation. A third alternative would involve a deemed liquidation of Cloudium plc (by electing to classify it as a disregarded entity for US federal income tax purposes through a "check-the-box" election on Form 8832), followed by the transfer of its assets and liabilities to a newly formed Delaware corporation in exchange for all of the stock of such corporation. This approach would be analyzed under Sections 332 and 351 of the Internal Revenue Code.

The selection among these alternatives will depend on the results of further analysis of both English law constraints and US federal income tax consequences, and we recommend that this determination be made in coordination with Albright & Kerr LLP and the Solara deal team.

3. US Federal Income Tax Analysis. The US federal income tax consequences of the re-domestication will vary depending on the mechanism selected:

• If structured as a cross-border conversion or a merger, the transaction should be analyzed under Section 368 of the Internal Revenue Code to determine whether it qualifies as a tax-free reorganization. A qualifying reorganization would permit the transaction to be consummated without the recognition of gain or loss by Cloudium plc, Fund VI, or the rollover equity participants. We have not completed this analysis but note that the general requirements for a Section 368(a)(1)(F) reorganization (a mere change in identity, form, or place of organization) may be applicable if the conversion is treated as a continuation of the same corporate entity in a different jurisdiction.

• If structured as a deemed liquidation followed by reincorporation, the transaction would be analyzed under Sections 332 and 351. Section 332 provides for the tax-free liquidation of a subsidiary into its parent where the parent owns at least 80% of the subsidiary's stock. Section 351 provides for tax-free treatment on the transfer of property to a corporation in exchange for stock where the transferors are in "control" of the corporation immediately after the transfer. Given that Fund VI owns 100% of Cloudium plc (disregarding the rollover equity for this purpose), both provisions should be available. However, the treatment of the rollover equity participants (Mr. Hargrove and Pinnacle Growth Ventures LLC) must be carefully analyzed to ensure that the transaction does not trigger taxable gain recognition at the rollover equity level.

4. Section 7874 "Inversion" Analysis. Section 7874 of the Internal Revenue Code imposes adverse tax consequences on certain corporate inversions in which a US-owned entity is acquired by a foreign entity. Although the re-domestication at issue here involves the migration of a UK-incorporated entity to the United States (the opposite direction from a typical inversion transaction), a technical analysis under Section 7874 is nonetheless warranted to confirm that the inversion rules do not apply. Given that (i) Cloudium plc is already treated as a US taxpayer (EIN 83-2196754) and has been filing US tax returns as a domestic corporation, (ii) the acquisition was structured as a purchase by a US fund (Fund VI), and (iii) the re-domestication moves the entity's jurisdiction of incorporation from the UK to the US, we do not anticipate that Section 7874 will apply. We will confirm this conclusion in a supplemental analysis.

5. UK Tax Consequences. The re-domestication of Cloudium plc from the UK to the US may trigger significant UK tax charges, which represent one of the most material tax risks in the proposed restructuring. The principal UK tax issues are as follows:

Exit Charges. If Cloudium plc ceases to be UK tax resident as a result of the re-domestication, it may be treated as having disposed of all of its assets at fair market value immediately prior to ceasing UK residence, under the deemed disposal provisions of the Taxation of Chargeable Gains Act 1992 ("TCGA 1992"). This deemed disposal could give rise to a UK corporation tax charge on any chargeable gains inherent in Cloudium plc's assets, including its shares in Cloudium UK and its other subsidiaries.

Substantial Shareholding Exemption (SSE). The UK SSE (Schedule 7AC, TCGA 1992) provides an exemption from corporation tax on chargeable gains arising on the disposal of shares in a "trading company" or "holding company of a trading group" where (i) the disposing company holds at least 10% of the ordinary share capital of the company being disposed of, (ii) the holding has been held for a continuous period of at least 12 months, and (iii) certain other conditions are met. To the extent that the deemed disposal on exit involves Cloudium plc's shares in its trading subsidiaries, the SSE should be available to exempt the gains. However, the applicability of the SSE to each subsidiary must be individually confirmed, and the SSE does not apply to gains on assets other than shares in qualifying subsidiaries (e.g., directly held intangible assets, if any).

Anti-Avoidance Provisions. During any transition period in which Cloudium plc's UK tax residence is being changed, careful attention must be paid to the UK controlled foreign company (CFC) rules under Part 9A of TIOPA 2010, as well as to the general anti-avoidance rule (GAAR) and targeted anti-avoidance rules that could apply to arrangements designed to reduce UK tax.

6. Timing Recommendation. We recommend that the re-domestication be completed within 6 to 12 months following the Closing Date (i.e., by approximately July 2025) in order to align with the broader integration planning timeline and to ensure that the re-domesticated entity is in place before the IP migration steps described below are executed. However, the precise timing should be coordinated with the finalization of the purchase price allocation and the completion of the UK legal analysis regarding the available conversion mechanics.

B. Step 2: IP Migration from Cloudium Technologies UK Ltd.

1. Identification of Intangible Assets. As noted in Section II.B above, Cloudium Technologies UK Ltd. holds material intangible assets that were developed in the UK over the course of the Company's history. Based on our review of the due diligence materials and discussions with the Cloudium management team, the specific intangible assets currently owned by or attributable to Cloudium UK include:

(a) Core ERP and CRM platform code modules — the foundational software code underlying Cloudium's enterprise resource planning and customer relationship management platform offerings, which were originally developed by the UK-based engineering team and continue to be maintained and enhanced by UK-based developers;

(b) SaaS architecture IP — the proprietary cloud infrastructure architecture, including microservices frameworks, API layer designs, and deployment automation tools, that enable the delivery of Cloudium's platform as a cloud-based software-as-a-service offering;

(c) UK-developed algorithms and analytics tools — machine learning algorithms, data analytics modules, and business intelligence tools developed by the UK R&D team and embedded in the Cloudium platform;

(d) Customer lists and relationships in EMEA — the established customer relationships attributable to the EMEA region, including existing contracts, renewal histories, customer-specific configurations, and associated customer data; and

(e) Trade names and brand elements — to the extent certain brand elements and trade names are legally registered or associated with the UK entity.

2. Proposed Migration. The proposed restructuring contemplates the transfer of certain of the above-described IP assets from Cloudium UK to Cloudium Inc. (or, alternatively, to a newly formed US IP holding company that would be a subsidiary of Cloudium Inc.) in order to centralize ownership of the globally deployed technology platform in the United States. The centralization of IP ownership is a key element of the proposed operating model, under which the US entity would serve as the entrepreneur and principal owner of the Cloudium platform, and the foreign subsidiaries would operate as limited-risk entities performing defined functions under intercompany agreements.

We note at the outset that the decision to migrate IP from the UK to the US involves significant trade-offs that must be carefully evaluated. On one hand, IP centralization can yield substantial tax benefits, including the elimination or reduction of GILTI inclusions, the alignment of income with the jurisdiction in which the controlling shareholders and principal decision-makers are located, and the simplification of the transfer pricing framework. On the other hand, the migration will trigger UK tax charges on the disposal, may forfeit favorable UK tax regimes (including the UK patent box), and will create significant transfer pricing documentation obligations. The cost/benefit analysis must be rigorously quantified before any migration is executed.

3. Valuation Requirement. An arm's-length transfer price must be established for the IP assets being migrated. This requirement arises under both US and UK transfer pricing rules:

• US transfer pricing rules: Section 482 of the Internal Revenue Code and the Treasury Regulations thereunder (specifically Treasury Regulation §§ 1.482-4 through 1.482-6) require that transfers of intangible property between related parties be priced at arm's length. For transfers of intangible property, the specified methods include the comparable uncontrolled transaction (CUT) method, the comparable profits method (CPM), the profit split method, and, where appropriate, unspecified methods. The "commensurate with income" standard under Section 482 requires that the consideration charged for intangible property be commensurate with the income attributable to the intangible, which may necessitate periodic adjustments to ensure ongoing arm's-length pricing.

• UK transfer pricing rules: Part 4 of the Taxation (International and Other Provisions) Act 2010 ("TIOPA 2010") requires that transactions between UK-connected parties be priced in accordance with the OECD arm's-length principle. HMRC has historically taken an aggressive posture with respect to IP transfers involving UK-resident entities, particularly in cases involving the migration of valuable technology IP out of the UK.

We recommend the engagement of an independent valuation firm (through Glenmore Thornton LLP) to prepare a contemporaneous valuation report supporting the transfer price for the UK IP. The valuation methodology should be consistent with both the OECD Transfer Pricing Guidelines and the methodologies accepted by HMRC and the IRS.

4. US Tax Implications. From a US federal income tax perspective, the purchase price paid by the US acquirer for the IP assets will create amortizable Section 197 intangible assets in the hands of the US entity. Section 197 provides for the amortization of goodwill and certain other intangible assets over a 15-year period on a straight-line basis. The amortization deductions will reduce the US taxable income of the acquiring entity over the amortization period, generating present-value tax savings.

The valuation of the IP for purposes of the intercompany transfer must be coordinated with the purchase price allocation under Section 1060 of the Internal Revenue Code, which governs the allocation of consideration in "applicable asset acquisitions." To the extent that the PPA assigns specific values to the UK-held intangible assets (e.g., customer relationships, developed technology, and trade names), those values should be consistent with — or at least reconcilable to — the arm's-length transfer prices used for the IP migration. Any material inconsistency between the PPA values and the transfer pricing values could invite scrutiny from the IRS and could undermine the defensibility of either analysis.

5. UK Tax Implications. The IP migration from Cloudium UK will have the following UK tax consequences, each of which requires careful analysis:

(a) UK Corporation Tax on Chargeable Gains. The transfer of IP by Cloudium UK to a US-related party at fair market value will be treated as a disposal of the IP assets for UK corporation tax purposes. To the extent that the fair market value of the IP exceeds its tax basis (which, for self-developed IP, may be nominal), Cloudium UK will realize a chargeable gain subject to UK corporation tax at the current rate of 25%. Given the potentially substantial value of the UK-held IP, the tax liability arising from this deemed disposal could be material.

(b) UK Diverted Profits Tax (DPT). The UK diverted profits tax, enacted in 2015, imposes a 25% tax on profits that HMRC determines have been artificially diverted from the UK through arrangements that lack economic substance. If HMRC were to take the position that the IP migration is part of an arrangement designed to reduce UK tax by diverting profits away from the UK entity to a US entity with insufficient economic substance or decision-making capacity in relation to the IP, the DPT could be asserted. To mitigate this risk, it is essential that the restructured operating model retain meaningful economic substance in the UK (e.g., a critical mass of employees performing key functions related to the Cloudium platform) and that the US entity demonstrate genuine ownership, control, and decision-making authority over the IP.

(c) UK Patent box Regime. Cloudium UK may currently benefit from the UK patent box regime, which provides a reduced corporation tax rate of 10% on income derived from qualifying patents and other qualifying IP rights. If Cloudium UK's income from the exploitation of qualifying IP is currently taxed at the reduced 10% rate, the migration of that IP to the US will forfeit this benefit. A detailed cost/benefit analysis is required to determine whether the aggregate tax savings from IP centralization (including the reduction in GILTI exposure and the generation of US amortization deductions) outweigh the loss of the UK patent box benefit.

(d) UK Stamp Duty / SDRT. UK stamp duty and stamp duty reserve tax are primarily relevant to transfers of securities (i.e., shares and certain debt instruments) and are generally not applicable to transfers of intellectual property assets. However, this should be confirmed with UK solicitors, particularly if the IP migration is structured as a transfer of shares in a subsidiary holding the IP rather than a direct transfer of IP assets.

(e) Withholding Tax on Royalties. If, as an alternative to an outright transfer of IP, the restructuring is implemented through a licensing arrangement (with Cloudium UK retaining legal ownership but licensing the IP to the US entity in exchange for royalty payments), the royalty payments would be subject to UK withholding tax at the rate of 20% under the Income Tax Act 2007. However, the withholding rate is reduced to 0% under Article 12 of the US-UK Income Tax Treaty for qualifying royalties paid to a US resident that is the beneficial owner of the royalties and is entitled to the benefits of the treaty. Proper treaty claim documentation (including certification that the US entity is a qualifying person under the Limitation on Benefits article) must be in place before any royalty payments are made.

6. Coordination with Purchase Price Allocation. As noted above, the values assigned to the UK IP in the intercompany transfer must be consistent with the values assigned to those same assets in the Section 1060 purchase price allocation. Any post-closing restructuring that results in material inconsistencies between the PPA and the transfer pricing valuations could be exploited by tax authorities in multiple jurisdictions, each of which may assert that a higher value should be attributed to the assets within its taxing jurisdiction. We strongly recommend that the PPA be finalized before any IP migration is executed, and that a single, coherent valuation framework be employed across both workstreams.

7. Phased Migration. Given the magnitude of the potential UK tax exposure, we recommend considering a phased approach to the IP migration. Under this approach, certain categories of IP (e.g., customer relationships, which may have a more limited useful life and therefore a lower present value of future income) would be migrated first, with the more valuable technology IP migrated in a subsequent phase. A phased approach would spread the UK tax liability over multiple tax periods and would provide time to assess HMRC's response to the initial migration before proceeding with the transfer of higher-value assets. The feasibility and tax implications of a phased approach should be evaluated in consultation with UK solicitors and with the independent valuation firm.

C. Step 3: IP Migration from Cloudium Solutions GmbH

1. Identification of Intangible Assets. Cloudium Solutions GmbH holds the following intangible assets that are specific to the DACH market:

(a) Localized software adaptations for the German, Austrian, and Swiss markets, including customizations to the core Cloudium platform to accommodate German-language interfaces, local regulatory requirements, and DACH-specific business processes;

(b) German-language customer documentation, training materials, and user guides;

(d) Associated goodwill and going-concern value attributable to the German entity's operations.

While the aggregate value of these assets is substantially less than the UK-held IP, the German "function relocation" rules create the potential for a tax exposure that is disproportionate to the value of the individual assets being transferred, as discussed below.

2. Proposed Migration. The proposed restructuring contemplates the transfer or license-back of the German-held IP to the centralized US IP holding structure. The specific mechanism for the migration (outright transfer, contribution, or license-back) should be determined based on the results of the German tax analysis and the relative costs and benefits of each approach.

3. German Tax Implications. The German tax implications of the IP migration are as follows:

(a) German Corporation Tax and Trade Tax on Gain. The transfer of IP assets by Cloudium Germany at fair market value will be treated as a disposal for German corporation tax (Körperschaftsteuer) and trade tax (Gewerbesteuer) purposes. The gain on the disposal (i.e., the excess of the fair market value over the tax basis of the IP) will be subject to German corporation tax at approximately 15.825% (including the solidarity surcharge) and trade tax at approximately 14-17% (depending on the municipal multiplier applicable in Berlin), for a combined effective rate of approximately 30%.

(b) Function Relocation (Funktionsverlagerung) Rules. The German function relocation rules, codified in Section 1 of the German Foreign Tax Act (Außensteuergesetz, or "AStG") and the German Income Tax Act (Einkommensteuergesetz), provide that if a "function" (including the associated assets, risks, opportunities, and other advantages) is relocated from a German entity to a related foreign entity, the German tax authorities may assert the right to tax the entire "transfer package" (Transferpaket) at its fair market value. The transfer package concept is broader than the individual IP assets being transferred and may include goodwill, going-concern value, and the present value of future profit potential associated with the relocated function.

This rule is of particular concern in the present case because the proposed migration of IP from Cloudium Germany, if accompanied by a reduction in the German entity's functions, assets, and risks, could be characterized by the German tax authorities as a function relocation, potentially resulting in a tax liability that exceeds the gain that would be recognized on a simple transfer of the individual IP assets. The German function relocation rules have been the subject of extensive controversy and litigation, and the German tax authorities have been aggressive in their application.

(c) German Exit Tax Exposure. More broadly, if the IP assets leave German taxing jurisdiction as a result of the migration, Germany may assert departure taxation on the unrealized gains embedded in those assets. This is consistent with Germany's general approach to exit taxation under EU and domestic law.

(d) German-US Treaty Provisions. The US-Germany Income Tax Treaty may provide relief from double taxation to the extent that Germany asserts tax on the IP migration and the US also asserts tax on the corresponding income inclusion. The availability of treaty relief will depend on the specific character of the income (capital gains, business profits, or royalties) and the allocation of taxing rights under the treaty. We will undertake a detailed treaty analysis as part of the next phase of work.

4. Valuation. The valuation of the German-held IP should be performed using an OECD-consistent methodology, such as the comparable uncontrolled transaction (CUT) method or the discounted cash flow (DCF) method. Given the German function relocation rules, the valuation may need to encompass the entire transfer package rather than individual IP assets. We recommend that the valuation be performed by the same independent valuation firm engaged for the UK IP migration, in order to ensure consistency across the global valuation framework.

5. Mitigation Strategies. To mitigate the German function relocation risk, we recommend considering the following strategies:

• Retain sufficient economic substance and functions in Germany, such that the IP migration does not constitute a "relocation" of the entire function within the meaning of the German rules. For example, if Cloudium Germany continues to perform meaningful sales, customer success, and localization functions using the centralized technology under a license-back arrangement, the German tax authorities may be less likely to characterize the transaction as a function relocation.

• Consider a partial migration, under which only certain discrete IP assets (e.g., customer relationships) are transferred to the US, while the localized software adaptations and customer documentation continue to be owned by Cloudium Germany and licensed to the US entity.

• Engage in advance discussions with the German tax authorities to seek a binding ruling or to negotiate the scope of the taxable transfer package.

6. Coordination with German FDI Analysis. During the pre-closing due diligence phase, we determined that no foreign direct investment notification obligation was triggered under the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz, or "AWG") and the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, or "AWV") in connection with the acquisition, as Cloudium Solutions GmbH does not operate in a sector classified as sensitive under the AWV (e.g., defense, critical infrastructure, or health). We should confirm that the post-closing restructuring — including any transfer of IP or changes to the German entity's functions — does not trigger a separate FDI notification obligation. Based on our current understanding, no such obligation should arise, but we recommend that this be confirmed with German counsel.

D. Step 4: Restructuring of Indian Operations

1. Current State. Cloudium Technologies India Pvt. Ltd. employs approximately 2,400 individuals in Bangalore, Karnataka, and operates primarily as a captive service center providing R&D and customer support services to the Cloudium group. The Indian entity's current intercompany arrangement is a cost-plus service model, under which Cloudium India is compensated for its services at cost plus a mark-up of approximately 12% over total operating costs.

2. Proposed Restructuring. The proposed restructuring does not contemplate the migration of functions, assets, or risks out of the Indian entity. Rather, the objective is to maintain the existing cost-plus service arrangement but to recalibrate the mark-up to reflect the post-acquisition operating model, updated benchmarking data, and the increased scrutiny that Indian transfer pricing authorities apply to cost-plus margins for IT/software captive entities.

3. Indian Transfer Pricing Considerations. Indian transfer pricing is governed by Sections 92 through 92F of the Indian Income Tax Act, 1961, and the associated rules thereunder. The Indian tax authorities have a well-documented track record of aggressively scrutinizing the cost-plus margins applied by captive service centers of multinational enterprises, and India has among the highest rates of transfer pricing adjustments globally. In recent years, the Indian tax authorities and the Indian Tax Appellate Tribunal have routinely asserted that cost-plus margins for IT/software service providers should be in the range of 15% to 25% over operating costs, based on comparability analyses using Indian public company data.

Based on our preliminary review and in consultation with Glenmore Thornton LLP, we recommend that the cost-plus mark-up for Cloudium India be set in the range of 15% to 20% over total operating costs, supported by a contemporaneous benchmarking study using Indian comparable companies. This represents an increase from the current 12% mark-up and is intended to place the mark-up within the range that the Indian tax authorities are likely to accept as arm's length. The specific mark-up within this range should be determined based on the results of the updated benchmarking study, which we recommend commissioning promptly.

In addition, we recommend evaluating the applicability of the Indian transfer pricing safe harbor rules, which provide deemed arm's-length margins for certain categories of transactions, including IT-enabled services provided by Indian captive entities. If the safe harbor rules are applicable and the prescribed margins fall within an acceptable range, reliance on the safe harbor may reduce the risk of a transfer pricing adjustment and the associated compliance burden.

4. Permanent Establishment Risk. The restructured intercompany agreements must be carefully drafted to avoid inadvertently creating a permanent establishment ("PE") of Cloudium Inc. (or any other non-Indian group entity) in India. Under Article 5 of the US-India Income Tax Treaty, a PE may be created if an entity has a "fixed place of business" in India through which it carries on its business, or if a "dependent agent" in India habitually exercises the authority to conclude contracts on behalf of the foreign enterprise.

To mitigate PE risk, we recommend the following:

• Ensure that the intercompany service agreements clearly characterize the Indian entity as an independent service provider acting on its own behalf, rather than as an agent of the US parent;

• Avoid granting Indian-based personnel the authority to negotiate or conclude contracts on behalf of Cloudium Inc. or any other non-Indian group entity;

• Ensure that the US parent does not exercise day-to-day management or operational control over the Indian entity's employees in a manner that could be interpreted as creating a fixed place of business in India; and

• Review the scope of any secondment arrangements to confirm that seconded employees are not performing functions on behalf of the US parent that could give rise to a dependent agent PE.

5. India FDI and Competition Considerations. As confirmed in the prior memorandum dated December 10, 2023, no downstream investment approval was required under India's FDI policy in connection with the Cloudium acquisition, and no filing with the Competition Commission of India ("CCI") was required based on the Indian subsidiary's turnover. We do not anticipate that the proposed restructuring of the Indian entity's intercompany arrangements will trigger any FDI or CCI filing obligations, but this should be confirmed with Indian counsel if the scope of the restructuring expands beyond the recalibration of the cost-plus mark-up.

6. Indian Employment Obligations. The proposed restructuring of the Indian entity is limited to the recalibration of the intercompany cost-plus mark-up and is not expected to involve any changes to the entity's headcount, employee terms and conditions, or organizational structure. Accordingly, we do not anticipate any impact on the Indian entity's obligations with respect to gratuity, provident fund, or other statutory employee benefits. However, if the restructuring is expanded to include headcount changes or changes to employee roles, a separate analysis of Indian employment law implications would be required.

E. Step 5: Establishment of New Intercompany Agreements

The final step in the proposed restructuring is the establishment of a comprehensive suite of new intercompany agreements to replace the existing legacy arrangements and to govern the economic relationships among the restructured entities on arm's-length terms. The principal agreements to be established are as follows:

1. Central IP License Agreement. Following the completion of the IP migration (Steps 2 and 3), Cloudium Inc. (or the US IP holding subsidiary, if one is established) will serve as the centralized owner of the Cloudium group's core technology IP. The foreign subsidiaries (Cloudium UK, Cloudium Germany, and any other operating entities) will exploit the technology under license agreements that provide for the payment of arm's-length royalties to the US IP owner. The royalty rates should be established based on a contemporaneous transfer pricing analysis using appropriate comparables, and should include periodic adjustment provisions to ensure that the royalty rates remain arm's length as the business evolves, consistent with the "commensurate with income" standard under Section 482.

2. Intercompany Services Agreements. Certain shared services — including information technology infrastructure, finance and accounting, human resources, and legal — will be provided by centralized functions (likely housed in the US or UK entity) to the other group entities. Appropriate cost-allocation methodologies (e.g., direct charge, indirect charge based on reasonable allocation keys, or cost-plus where applicable) should be established and documented. The services agreements should identify the specific services to be provided, the allocation methodology, and the mark-up (if any) to be applied.

3. Data Processing Agreements. Given the cross-border flow of personal data among the Cloudium group entities, data processing agreements must be established to comply with the General Data Protection Regulation ("GDPR") applicable to the UK and German entities, as well as the Indian data protection requirements under the Digital Personal Data Protection Act, 2023. While data processing agreements are primarily driven by data privacy considerations rather than tax considerations, the terms of these agreements should be coordinated with the intercompany services agreements to ensure consistency.

4. Management Services Agreement. Any management or advisory fees charged by Solara Digital Infrastructure LP or Fund VI (or their affiliates) to the Cloudium group for portfolio company management, strategic advisory, or operational support services must be structured to satisfy the requirements for current deductibility under Section 162 of the Internal Revenue Code (as ordinary and necessary business expenses) and must not be recharacterized as non-deductible capital contributions or disguised distributions under Section 482 or other applicable provisions. The management fee arrangement should be supported by a contemporaneous analysis of the services provided and the arm's-length nature of the fees.

IV. Transfer Pricing Framework

A. Overall Transfer Pricing Policy Design

The restructuring described in Section III above will necessitate the establishment of a comprehensive, OECD-aligned transfer pricing framework that allocates income among the restructured entities consistent with the functions performed, assets used, and risks assumed by each entity (the "FAR analysis"). The objective of the transfer pricing framework is to provide a defensible, well-documented basis for the pricing of all material intercompany transactions, and to minimize the risk of transfer pricing adjustments by tax authorities in the US, UK, Germany, India, and any other relevant jurisdictions.

The key transfer pricing methodologies that will be relevant to the Cloudium restructuring are:

• Comparable Uncontrolled Price (CUP) Method: The CUP method compares the price charged in a controlled transaction to the price charged in comparable transactions between unrelated parties. The CUP method is generally considered the most reliable method where reliable comparables are available, but is often difficult to apply to transfers of unique intangible property.

• Comparable Profits Method (CPM) / Transactional Net Margin Method (TNMM): The CPM (under US rules) or TNMM (under OECD guidelines) compares the net profit margin earned by a tested party in a controlled transaction to the net profit margins earned by comparable uncontrolled companies. This method is commonly used for benchmarking the profitability of limited-risk entities such as captive service centers and limited-risk distributors.

• Profit Split Method: The profit split method allocates the combined profit of the controlled parties based on their relative contributions to the value creation, typically using asset-based, expense-based, or contribution-based allocation keys. The residual profit split method, which first allocates a routine return to each party and then allocates the residual profit based on relative contributions, is often applied to transactions involving high-value intangibles where both parties make unique and valuable contributions.

In addition to the selection of appropriate methodologies, the transfer pricing framework must address the following documentation requirements:

• Master File / Local File Documentation: Under OECD BEPS Action 13 and the corresponding domestic rules in each jurisdiction, multinational enterprise groups are required to prepare and maintain contemporaneous transfer pricing documentation consisting of a master file (providing an overview of the group's global business operations, transfer pricing policies, and global allocation of income and economic activity) and local files (providing detailed information on the material intercompany transactions of each local entity, the transfer pricing analysis supporting the pricing, and the comparables used).

• Country-by-Country Reporting (CbCR): The Cloudium group's global revenue exceeds the €750 million threshold for CbCR obligations under OECD BEPS Action 13 and the corresponding domestic implementing legislation. Accordingly, the group will be required to file CbCR reports with the relevant tax authorities, providing jurisdiction-by-jurisdiction information on revenue, profit before tax, income tax paid and accrued, number of employees, stated capital, retained earnings, and tangible assets. The CbCR filing obligation will likely rest with the ultimate parent entity (Fund VI or Cloudium Inc. after re-domestication) and will be required for fiscal years beginning after the Closing Date.

B. US Transfer Pricing (Section 482)

Section 482 of the Internal Revenue Code grants the IRS the authority to distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among commonly controlled entities if it determines that such distribution, apportionment, or allocation is necessary to prevent evasion of taxes or clearly to reflect the income of such entities. The Treasury Regulations under Section 482 set forth detailed rules for the pricing of intercompany transactions involving tangible property, intangible property, services, and loans.

For purposes of the Cloudium restructuring, the most critical aspect of the US transfer pricing rules is the "commensurate with income" standard for transfers of intangible property. Under this standard, the consideration charged for a transfer of intangible property must be commensurate with the income attributable to the intangible. This standard was introduced specifically to address situations in which a US taxpayer transfers valuable intangibles to a related foreign entity at a price that is determined at the time of the transfer but does not adequately reflect the actual income generated by the intangible over time. The commensurate-with-income standard effectively requires periodic adjustments to ensure that the compensation received by the transferor reflects the actual economic performance of the transferred intangible.

In the context of the Cloudium restructuring, the commensurate-with-income standard will be relevant both to the initial IP migration (where the US entity acquires IP from the UK and German subsidiaries) and to the ongoing royalty arrangements (where the US entity licenses technology to the foreign subsidiaries). The intercompany agreements should include periodic adjustment provisions that allow for the recalibration of royalty rates based on actual revenue and profitability data.

We also recommend that the Solara deal team evaluate whether to pursue bilateral advance pricing agreements ("APAs") with the IRS and the relevant foreign tax authorities (HMRC for the UK and the Bundeszentralamt für Steuern for Germany). A bilateral APA would provide prospective certainty on the arm's-length pricing of the intercompany transactions and would significantly reduce the risk of double taxation resulting from inconsistent transfer pricing adjustments by the US and foreign tax authorities. The APA process is time-consuming and resource-intensive, but the magnitude of the intercompany transactions in the Cloudium group — and the complexity of the IP migration — may justify the investment.

Finally, the values assigned to intangible assets in the Section 1060 purchase price allocation should be consistent with the transfer pricing valuations used for the IP migration. Any material inconsistency between the PPA and the transfer pricing analysis could be used by the IRS as evidence that one or both valuations are incorrect.

C. UK Transfer Pricing (TIOPA 2010)

The United Kingdom's transfer pricing rules, set forth in Part 4 of the Taxation (International and Other Provisions) Act 2010 ("TIOPA 2010"), adopt the OECD arm's-length principle as the standard for pricing transactions between connected parties. TIOPA 2010 requires that the terms of a transaction between connected persons be determined as if the transaction had been entered into between independent parties dealing at arm's length.

HMRC has devoted significant enforcement resources to IP-rich multinationals in recent years, and UK transfer pricing audits frequently focus on the pricing of IP licenses, management fees, and intercompany services. In the context of the Cloudium restructuring, the critical UK transfer pricing issue will be the valuation of the IP transferred from Cloudium UK and the adequacy of the royalty rates paid by Cloudium UK (as licensee) to the US entity (as licensor) under the post-migration licensing arrangement. Robust contemporaneous documentation will be essential to support the arm's-length nature of these arrangements.

As noted in Section III.B above, the UK diverted profits tax ("DPT") represents an additional enforcement mechanism that HMRC may deploy if it determines that the arrangements lack economic substance or involve entities with limited personnel, decision-making authority, or operational functions. The DPT applies at a rate of 25% and can be assessed on profits that HMRC determines have been artificially diverted from the UK. To mitigate DPT risk, the restructured operating model must retain meaningful economic substance in the UK, including sufficient personnel to perform the functions attributed to Cloudium UK in the transfer pricing analysis.

D. German Transfer Pricing (AStG Section 1)

The German transfer pricing rules are primarily set forth in Section 1 of the German Foreign Tax Act (Außensteuergesetz, or "AStG") and the associated German documentation regulations (Gewinnaufzeichnungsverordnung, or "GAufzV"). Germany applies the OECD arm's-length principle and generally follows the OECD Transfer Pricing Guidelines, but with certain domestic modifications that can significantly increase the tax exposure associated with cross-border restructurings.

The most significant German transfer pricing issue in the context of the Cloudium restructuring is the function relocation (Funktionsverlagerung) rules. Under these rules, if a "function" — defined broadly to include the associated assets, risks, opportunities, and other advantages — is relocated from a German entity to a related foreign entity, the entire "transfer package" (Transferpaket) must be valued and taxed at its fair market value. The transfer package concept goes beyond the sum of the individual assets and may include goodwill, going-concern value, workforce-in-place, and the present value of future profit potential that the German entity would have realized if the function had not been relocated.

The German documentation requirements under GAufzV are also more prescriptive than in many other jurisdictions, requiring detailed documentation of the nature and scope of the business relationship, the functions performed and risks assumed by each party, the contractual terms, the methodology used to determine the arm's-length price, and the comparables analysis. Documentation must be prepared contemporaneously and must be made available to the German tax authorities within 60 days of a request.

Given the complexity and risk associated with the German function relocation rules, we recommend engaging German tax counsel to advise on the specific mechanics of the IP migration from Cloudium Germany and to evaluate the possibility of negotiating a "hypothetical arm's-length test" (hypothetischer Fremdvergleich) with the German tax authorities. Under this approach, the arm's-length price for the transfer package is determined based on what a willing buyer and a willing seller would agree to in comparable circumstances, taking into account both the seller's minimum price and the buyer's maximum price.

E. Indian Transfer Pricing (Sections 92-92F)

Indian transfer pricing rules are governed by Sections 92 through 92F of the Indian Income Tax Act, 1961, and the Income Tax Rules promulgated thereunder. India has adopted the OECD arm's-length principle and provides for the use of standard transfer pricing methods (CUP, RPM, CPM, PSM, and TNMM). However, the Indian tax authorities have historically taken an aggressive approach to transfer pricing enforcement, and India has one of the highest rates of transfer pricing adjustments globally.

For the Cloudium restructuring, the principal Indian transfer pricing issue is the calibration of the cost-plus mark-up for Cloudium India's captive service center operations. As discussed in Section III.D above, we recommend a mark-up in the range of 15% to 20% over operating costs, supported by an updated contemporaneous benchmarking study. The benchmarking study should use Indian comparable companies and should be prepared in accordance with the specific requirements of the Indian transfer pricing rules, including the use of the "multiple year data" approach (three-year rolling average) and the application of the Indian comparability filters.

We also recommend evaluating the applicability of the Indian transfer pricing safe harbor rules (Rule 10TD through 10TG of the Indian Income Tax Rules), which provide deemed arm's-length margins for certain categories of transactions, including IT-enabled services provided by Indian captive entities to related foreign parties. If the safe harbor rules are available and the prescribed margins fall within an acceptable range, reliance on the safe harbor may reduce audit risk and simplify the I

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
INTERNAL MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP Tax Department
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I. Executive Summary
This memorandum addresses the principal United States federal, United Kingdom, German, and Indian tax considerations arising from the anticipated post-closing corporate restructuring of Cloudium Technologies plc ("Cloudium" or the "Company") and its subsidiaries following the closing of the reverse triangular merger on July 9, 2024 (the "Closing Date"). The purpose of this memorandum is to provide the Solara deal team and Calderwood & Harkness's M&A practice group with a comprehensive analysis of the tax implications associated with each phase of the proposed integration plan, and to identify risks, planning opportunities, and sequencing considerations that should inform the execution timeline.
As the recipients are aware, the acquisition was structured as a reverse triangular merger under the Delaware General Corporation Law ("DGCL"), pursuant to which Stratos Merger Sub Inc. ("Merger Sub"), a Delaware corporation and wholly owned subsidiary of Solara Digital Infrastructure Fund VI LP ("Fund VI"), merged with and into Cloudium Technologies plc, with Cloudium surviving the merger as a wholly owned subsidiary of Fund VI. The aggregate deal value was approximately $6,800,000,000, reflecting per-share cash consideration of approximately $36.92 per Cloudium ordinary share. The transaction was priced at a last-twelve-months ("LTM") EBITDA multiple of approximately 16.8x based on the Company's LTM EBITDA of approximately $405,000,000. The acquisition was funded in part through a $3,740,000,000 Term Loan B facility (SOFR + 325 basis points, maturing July 9, 2031) and a $500,000,000 Revolving Credit Facility (SOFR + 275 basis points, undrawn at closing), with the balance funded through equity contributions from Fund VI, its limited partners, and co-investment vehicles.
The key restructuring objectives driving the analysis in this memorandum are as follows:
(a) Re-domestication of Cloudium plc from a company incorporated in England and Wales to a United States (Delaware) corporation ("Cloudium Inc."), in order to simplify the corporate structure, align the holding company jurisdiction with the principal equity investors, and facilitate efficient capital repatriation;
(b) Rationalization of the subsidiary structure, including the elimination of redundant holding entities and the alignment of legal entity structure with the post-acquisition operating model;
(c) Migration of certain intellectual property assets currently held by Cloudium Technologies UK Ltd. ("Cloudium UK") and Cloudium Solutions GmbH ("Cloudium Germany") to a US-based or tax-efficient holding entity, in order to centralize ownership of globally deployed technology and optimize the group's effective tax rate;
(d) Establishment of appropriate intercompany agreements to govern the provision of services, licensing of technology, and allocation of costs among the restructured entities on arm's-length terms; and
(e) Alignment of transfer pricing policies with the post-acquisition operating model, including updated benchmarking studies and contemporaneous documentation designed to withstand scrutiny by taxing authorities in all relevant jurisdictions.
This memorandum should be read in conjunction with the following prior analyses prepared in connection with the Cloudium acquisition, copies of which are maintained in the matter file:
• Tax Structuring Memorandum (Section 368 Analysis), dated November 1, 2023;
• UK Tax Implications Memorandum, dated December 12, 2023;
• Purchase Price Allocation Methodology Memorandum, dated June 15, 2024; and
• Tax Memorandum — Deductibility of Transaction Costs, dated June 20, 2024.
This memorandum has been prepared in coordination with Glenmore Thornton LLP, specifically Richard Okamura (Lead Partner, Transaction Tax) and Vanessa Liu (Lead Partner, Financial Due Diligence), who have provided input on the purchase price allocation methodology, transfer pricing benchmarking considerations, and certain financial due diligence findings that inform the restructuring analysis. Unless otherwise indicated, all dollar amounts in this memorandum are expressed in United States dollars, and all tax rate references are current as of the date of this memorandum.
II. Post-Closing Corporate Structure — Current State
A. Overview of Current Group Structure Following Closing
Following the closing of the reverse triangular merger on July 9, 2024, the Cloudium group's ultimate ownership structure is as follows:
Solara Digital Infrastructure Fund VI LP, a Delaware limited partnership (the general partner of which is Solara Fund VI GP LLC, a Delaware limited liability company), owns 100% of the issued and outstanding share capital of Cloudium Technologies plc, the surviving corporation of the reverse triangular merger. Cloudium Technologies plc remains incorporated in England and Wales under Company No. 09734521 and has been assigned US Employer Identification Number 83-2196754 for US federal income tax reporting purposes. As noted in our prior Section 368 Analysis, Cloudium Technologies plc is treated as a corporation for US federal income tax purposes and has historically filed US tax returns as a domestic corporation due to its prior "check-the-box" election on Form 8832.
In addition to Fund VI's direct ownership, certain rollover equity participants hold equity interests in the surviving entity structure as follows:
• Jonathan Hargrove (Chief Executive Officer of Cloudium) rolled over approximately $142,814,544 in equity value, representing 50% of his pre-closing holdings of 7,736,400 Cloudium ordinary shares. Mr. Hargrove's rollover equity is held as a direct equity interest in the surviving entity alongside Fund VI's equity, subject to the terms of the Management Equity Plan and related agreements.
• Pinnacle Growth Ventures LLC rolled over approximately $473,241,408 in equity value, representing 60% of its pre-closing holdings of 21,367,200 Cloudium ordinary shares. Pinnacle's rollover equity is held on substantially similar economic terms to Fund VI's equity interest, subject to certain tag-along and drag-along rights as specified in the Shareholders' Agreement dated July 9, 2024.
Additionally, Solara Digital Co-Invest VI-A LP, a Delaware limited partnership, made a co-investment of $425,000,000 alongside Fund VI, representing a subset of the total equity contribution to the acquisition. The co-invest vehicle participates pari passu with Fund VI in the economics of the investment, subject to different fee and carry arrangements as between the co-invest limited partners and the general partner.
B. Subsidiary Entities
Cloudium Technologies plc owns, directly or indirectly, the following material operating subsidiaries, each of which is relevant to the post-closing integration tax analysis:
Cloudium Technologies UK Ltd. Cloudium Technologies UK Ltd. is a private limited company incorporated in England and Wales under Company No. 11287456, with its registered office at 45 Broadwick Street, London W1F 0DB. Cloudium UK is wholly owned by Cloudium Technologies plc. The entity employs approximately 1,200 individuals across offices in London and Manchester, including the Company's principal product development team, a significant portion of its EMEA-focused sales and customer success organization, and certain corporate functions. For the fiscal year ended September 30, 2023, Cloudium UK reported revenue of approximately £312,000,000 (approximately $390,000,000 at an exchange rate of $1.25 per pound sterling).
Critically for purposes of this memorandum, Cloudium UK holds material intangible assets, including (i) certain proprietary software intellectual property, including core ERP and CRM platform code modules and SaaS architecture components originally developed by the UK development team, (ii) customer relationships attributable to the EMEA region, and (iii) trade names and associated goodwill developed in the UK market. The existence and magnitude of these UK-held intangible assets are central to the IP migration analysis set forth in Section III.B below.
Cloudium Technologies India Pvt. Ltd. Cloudium Technologies India Pvt. Ltd. ("Cloudium India") is a private limited company incorporated in Bangalore, Karnataka, India. Cloudium India is wholly owned by Cloudium Technologies plc. The entity employs approximately 2,400 individuals, the majority of whom are engaged in research and development activities (including software engineering, quality assurance, and platform testing) and customer support operations. Cloudium India operates primarily as a captive service center, providing services exclusively to the Cloudium group under intercompany service agreements. Cloudium India does not independently own material intellectual property; rather, it provides development services on a cost-plus basis, with all resulting IP owned by the commissioning entity (historically, Cloudium UK or Cloudium plc).
Cloudium Solutions GmbH. Cloudium Solutions GmbH ("Cloudium Germany") is a limited liability company (Gesellschaft mit beschränkter Haftung) incorporated in Berlin, Germany. Cloudium Germany is wholly owned by Cloudium Technologies plc. The entity employs approximately 400 individuals, primarily engaged in sales, customer success, and localization activities for the DACH region (Germany, Austria, and Switzerland). Cloudium Germany holds certain intangible assets that are specific to the DACH market, including localized software adaptations, German-language customer documentation, and local customer contracts and relationships. While the value of these assets is substantially less than the UK-held IP, the German "function relocation" (Funktionsverlagerung) rules create potentially significant tax exposure in connection with any migration of these assets, as discussed in detail in Section III.C below.
C. Existing Intercompany Arrangements
Prior to the closing, the Cloudium group operated under a set of intercompany agreements that governed the provision of services, the allocation of costs, and the licensing of intellectual property among the parent and its subsidiaries. Based on our review of the existing intercompany documentation (copies of which were provided during the due diligence process and are maintained in the data room), the pre-closing arrangements may be summarized as follows:
• Cloudium UK and Cloudium plc operated under an intercompany service agreement pursuant to which Cloudium UK provided certain technology development, sales support, and corporate services to the parent entity, with costs allocated on a basis that appears to have been designed to approximate an arm's-length charge, though the documentation supporting the pricing methodology is limited.
• Cloudium UK and Cloudium Germany had in place a cost-sharing arrangement under which certain development costs for the SaaS platform were allocated between the two entities based on anticipated benefit. Cloudium Germany also licensed certain platform technology from Cloudium UK under a license agreement that provided for royalty payments based on a percentage of net revenue attributable to the DACH market.
• Cloudium UK and Cloudium Germany each retained significant intangible value from self-developed intellectual property. The historical retention of IP ownership at the subsidiary level reflects the organic growth of the Cloudium business, in which the UK entity served as the primary development hub and the German entity developed localized adaptations independently or through co-development with the UK team.
• Cloudium India operated under a cost-plus service arrangement for the provision of R&D and customer support services, with a mark-up of approximately 12% over total operating costs. As discussed in Section IV.E below, this mark-up is at the lower end of the range that would be expected by the Indian tax authorities based on current benchmarking data for comparable IT-enabled service providers.
A critical finding from the tax due diligence process is that the existing intercompany agreements are, in certain respects, outdated, insufficiently documented, and may not fully reflect the arm's-length standard. The post-closing restructuring presents an opportunity — and, in our view, a necessity — to replace these legacy arrangements with a comprehensive, defensible intercompany framework that is consistent with the OECD Transfer Pricing Guidelines and the domestic transfer pricing rules of each relevant jurisdiction.
III. Proposed Restructuring Steps
The proposed post-closing restructuring consists of five principal steps, each of which is discussed in detail below. The sequencing and timing of these steps is addressed in Section XI. We emphasize that the tax analysis set forth below is preliminary in certain respects, and that certain determinations (including the final values assigned to intangible assets, the precise mechanics of the re-domestication, and the specific terms of the intercompany agreements) will depend on further analysis and the completion of workstreams currently in progress, including the finalization of the purchase price allocation and the engagement of an independent valuation firm.
A. Step 1: Re-Domestication of Cloudium plc to Cloudium Inc.
1. Overview and Business Rationale. The first and most structurally significant step in the proposed restructuring is the conversion of Cloudium Technologies plc from an English public limited company registered in England and Wales to a Delaware corporation ("Cloudium Inc."). The re-domestication is motivated by several considerations, including: (i) the simplification of the group's corporate governance structure by eliminating the complexities of maintaining a UK-incorporated entity as the direct subsidiary of a US-based private equity fund; (ii) the alignment of the principal holding company's jurisdiction of incorporation with the jurisdiction of the controlling equity investors and the majority of the group's economic activity; (iii) the facilitation of tax-efficient capital repatriation from the operating subsidiaries through the US parent; and (iv) the creation of a more conventional organizational structure for purposes of the group's debt instruments, investor reporting, and any future exit transaction.
2. Mechanics. The re-domestication may be accomplished through several alternative mechanisms, each of which carries different legal and tax implications:
Option A: Cross-Border Conversion. Under the UK Companies Act 2006 (as amended), it may be possible to effect a cross-border conversion of Cloudium plc into a Delaware corporation, depending on the availability of such a procedure under both English law and Delaware law. The feasibility of this approach must be confirmed with UK solicitors. We understand that Albright & Kerr LLP (Fiona McAllister) has been engaged to advise on the English law aspects of the restructuring, and we recommend that this question be addressed as an early priority.
Option B: Merger into a New Delaware Entity. Alternatively, the re-domestication could be structured as a merger of Cloudium plc with and into a newly formed Delaware corporation ("New Cloudium Inc."), with New Cloudium Inc. surviving the merger and succeeding to all of the assets, liabilities, and operations of Cloudium plc. This approach is more familiar under Delaware law and provides a well-established legal framework for the transfer of assets and liabilities, but may have different tax consequences than a cross-border conversion.
Option C: Deemed Liquidation and Reincorporation. A third alternative would involve a deemed liquidation of Cloudium plc (by electing to classify it as a disregarded entity for US federal income tax purposes through a "check-the-box" election on Form 8832), followed by the transfer of its assets and liabilities to a newly formed Delaware corporation in exchange for all of the stock of such corporation. This approach would be analyzed under Sections 332 and 351 of the Internal Revenue Code.
The selection among these alternatives will depend on the results of further analysis of both English law constraints and US federal income tax consequences, and we recommend that this determination be made in coordination with Albright & Kerr LLP and the Solara deal team.
3. US Federal Income Tax Analysis. The US federal income tax consequences of the re-domestication will vary depending on the mechanism selected:
• If structured as a cross-border conversion or a merger, the transaction should be analyzed under Section 368 of the Internal Revenue Code to determine whether it qualifies as a tax-free reorganization. A qualifying reorganization would permit the transaction to be consummated without the recognition of gain or loss by Cloudium plc, Fund VI, or the rollover equity participants. We have not completed this analysis but note that the general requirements for a Section 368(a)(1)(F) reorganization (a mere change in identity, form, or place of organization) may be applicable if the conversion is treated as a continuation of the same corporate entity in a different jurisdiction.
• If structured as a deemed liquidation followed by reincorporation, the transaction would be analyzed under Sections 332 and 351. Section 332 provides for the tax-free liquidation of a subsidiary into its parent where the parent owns at least 80% of the subsidiary's stock. Section 351 provides for tax-free treatment on the transfer of property to a corporation in exchange for stock where the transferors are in "control" of the corporation immediately after the transfer. Given that Fund VI owns 100% of Cloudium plc (disregarding the rollover equity for this purpose), both provisions should be available. However, the treatment of the rollover equity participants (Mr. Hargrove and Pinnacle Growth Ventures LLC) must be carefully analyzed to ensure that the transaction does not trigger taxable gain recognition at the rollover equity level.
4. Section 7874 "Inversion" Analysis. Section 7874 of the Internal Revenue Code imposes adverse tax consequences on certain corporate inversions in which a US-owned entity is acquired by a foreign entity. Although the re-domestication at issue here involves the migration of a UK-incorporated entity to the United States (the opposite direction from a typical inversion transaction), a technical analysis under Section 7874 is nonetheless warranted to confirm that the inversion rules do not apply. Given that (i) Cloudium plc is already treated as a US taxpayer (EIN 83-2196754) and has been filing US tax returns as a domestic corporation, (ii) the acquisition was structured as a purchase by a US fund (Fund VI), and (iii) the re-domestication moves the entity's jurisdiction of incorporation from the UK to the US, we do not anticipate that Section 7874 will apply. We will confirm this conclusion in a supplemental analysis.
5. UK Tax Consequences. The re-domestication of Cloudium plc from the UK to the US may trigger significant UK tax charges, which represent one of the most material tax risks in the proposed restructuring. The principal UK tax issues are as follows:
Exit Charges. If Cloudium plc ceases to be UK tax resident as a result of the re-domestication, it may be treated as having disposed of all of its assets at fair market value immediately prior to ceasing UK residence, under the deemed disposal provisions of the Taxation of Chargeable Gains Act 1992 ("TCGA 1992"). This deemed disposal could give rise to a UK corporation tax charge on any chargeable gains inherent in Cloudium plc's assets, including its shares in Cloudium UK and its other subsidiaries.
Substantial Shareholding Exemption (SSE). The UK SSE (Schedule 7AC, TCGA 1992) provides an exemption from corporation tax on chargeable gains arising on the disposal of shares in a "trading company" or "holding company of a trading group" where (i) the disposing company holds at least 10% of the ordinary share capital of the company being disposed of, (ii) the holding has been held for a continuous period of at least 12 months, and (iii) certain other conditions are met. To the extent that the deemed disposal on exit involves Cloudium plc's shares in its trading subsidiaries, the SSE should be available to exempt the gains. However, the applicability of the SSE to each subsidiary must be individually confirmed, and the SSE does not apply to gains on assets other than shares in qualifying subsidiaries (e.g., directly held intangible assets, if any).
Anti-Avoidance Provisions. During any transition period in which Cloudium plc's UK tax residence is being changed, careful attention must be paid to the UK controlled foreign company (CFC) rules under Part 9A of TIOPA 2010, as well as to the general anti-avoidance rule (GAAR) and targeted anti-avoidance rules that could apply to arrangements designed to reduce UK tax.
6. Timing Recommendation. We recommend that the re-domestication be completed within 6 to 12 months following the Closing Date (i.e., by approximately July 2025) in order to align with the broader integration planning timeline and to ensure that the re-domesticated entity is in place before the IP migration steps described below are executed. However, the precise timing should be coordinated with the finalization of the purchase price allocation and the completion of the UK legal analysis regarding the available conversion mechanics.
B. Step 2: IP Migration from Cloudium Technologies UK Ltd.
1. Identification of Intangible Assets. As noted in Section II.B above, Cloudium Technologies UK Ltd. holds material intangible assets that were developed in the UK over the course of the Company's history. Based on our review of the due diligence materials and discussions with the Cloudium management team, the specific intangible assets currently owned by or attributable to Cloudium UK include:
(a) Core ERP and CRM platform code modules — the foundational software code underlying Cloudium's enterprise resource planning and customer relationship management platform offerings, which were originally developed by the UK-based engineering team and continue to be maintained and enhanced by UK-based developers;
(b) SaaS architecture IP — the proprietary cloud infrastructure architecture, including microservices frameworks, API layer designs, and deployment automation tools, that enable the delivery of Cloudium's platform as a cloud-based software-as-a-service offering;
(c) UK-developed algorithms and analytics tools — machine learning algorithms, data analytics modules, and business intelligence tools developed by the UK R&D team and embedded in the Cloudium platform;
(d) Customer lists and relationships in EMEA — the established customer relationships attributable to the EMEA region, including existing contracts, renewal histories, customer-specific configurations, and associated customer data; and
(e) Trade names and brand elements — to the extent certain brand elements and trade names are legally registered or associated with the UK entity.
2. Proposed Migration. The proposed restructuring contemplates the transfer of certain of the above-described IP assets from Cloudium UK to Cloudium Inc. (or, alternatively, to a newly formed US IP holding company that would be a subsidiary of Cloudium Inc.) in order to centralize ownership of the globally deployed technology platform in the United States. The centralization of IP ownership is a key element of the proposed operating model, under which the US entity would serve as the entrepreneur and principal owner of the Cloudium platform, and the foreign subsidiaries would operate as limited-risk entities performing defined functions under intercompany agreements.
We note at the outset that the decision to migrate IP from the UK to the US involves significant trade-offs that must be carefully evaluated. On one hand, IP centralization can yield substantial tax benefits, including the elimination or reduction of GILTI inclusions, the alignment of income with the jurisdiction in which the controlling shareholders and principal decision-makers are located, and the simplification of the transfer pricing framework. On the other hand, the migration will trigger UK tax charges on the disposal, may forfeit favorable UK tax regimes (including the UK patent box), and will create significant transfer pricing documentation obligations. The cost/benefit analysis must be rigorously quantified before any migration is executed.
3. Valuation Requirement. An arm's-length transfer price must be established for the IP assets being migrated. This requirement arises under both US and UK transfer pricing rules:
• US transfer pricing rules: Section 482 of the Internal Revenue Code and the Treasury Regulations thereunder (specifically Treasury Regulation §§ 1.482-4 through 1.482-6) require that transfers of intangible property between related parties be priced at arm's length. For transfers of intangible property, the specified methods include the comparable uncontrolled transaction (CUT) method, the comparable profits method (CPM), the profit split method, and, where appropriate, unspecified methods. The "commensurate with income" standard under Section 482 requires that the consideration charged for intangible property be commensurate with the income attributable to the intangible, which may necessitate periodic adjustments to ensure ongoing arm's-length pricing.
• UK transfer pricing rules: Part 4 of the Taxation (International and Other Provisions) Act 2010 ("TIOPA 2010") requires that transactions between UK-connected parties be priced in accordance with the OECD arm's-length principle. HMRC has historically taken an aggressive posture with respect to IP transfers involving UK-resident entities, particularly in cases involving the migration of valuable technology IP out of the UK.
We recommend the engagement of an independent valuation firm (through Glenmore Thornton LLP) to prepare a contemporaneous valuation report supporting the transfer price for the UK IP. The valuation methodology should be consistent with both the OECD Transfer Pricing Guidelines and the methodologies accepted by HMRC and the IRS.
4. US Tax Implications. From a US federal income tax perspective, the purchase price paid by the US acquirer for the IP assets will create amortizable Section 197 intangible assets in the hands of the US entity. Section 197 provides for the amortization of goodwill and certain other intangible assets over a 15-year period on a straight-line basis. The amortization deductions will reduce the US taxable income of the acquiring entity over the amortization period, generating present-value tax savings.
The valuation of the IP for purposes of the intercompany transfer must be coordinated with the purchase price allocation under Section 1060 of the Internal Revenue Code, which governs the allocation of consideration in "applicable asset acquisitions." To the extent that the PPA assigns specific values to the UK-held intangible assets (e.g., customer relationships, developed technology, and trade names), those values should be consistent with — or at least reconcilable to — the arm's-length transfer prices used for the IP migration. Any material inconsistency between the PPA values and the transfer pricing values could invite scrutiny from the IRS and could undermine the defensibility of either analysis.
5. UK Tax Implications. The IP migration from Cloudium UK will have the following UK tax consequences, each of which requires careful analysis:
(a) UK Corporation Tax on Chargeable Gains. The transfer of IP by Cloudium UK to a US-related party at fair market value will be treated as a disposal of the IP assets for UK corporation tax purposes. To the extent that the fair market value of the IP exceeds its tax basis (which, for self-developed IP, may be nominal), Cloudium UK will realize a chargeable gain subject to UK corporation tax at the current rate of 25%. Given the potentially substantial value of the UK-held IP, the tax liability arising from this deemed disposal could be material.
(b) UK Diverted Profits Tax (DPT). The UK diverted profits tax, enacted in 2015, imposes a 25% tax on profits that HMRC determines have been artificially diverted from the UK through arrangements that lack economic substance. If HMRC were to take the position that the IP migration is part of an arrangement designed to reduce UK tax by diverting profits away from the UK entity to a US entity with insufficient economic substance or decision-making capacity in relation to the IP, the DPT could be asserted. To mitigate this risk, it is essential that the restructured operating model retain meaningful economic substance in the UK (e.g., a critical mass of employees performing key functions related to the Cloudium platform) and that the US entity demonstrate genuine ownership, control, and decision-making authority over the IP.
(c) UK Patent box Regime. Cloudium UK may currently benefit from the UK patent box regime, which provides a reduced corporation tax rate of 10% on income derived from qualifying patents and other qualifying IP rights. If Cloudium UK's income from the exploitation of qualifying IP is currently taxed at the reduced 10% rate, the migration of that IP to the US will forfeit this benefit. A detailed cost/benefit analysis is required to determine whether the aggregate tax savings from IP centralization (including the reduction in GILTI exposure and the generation of US amortization deductions) outweigh the loss of the UK patent box benefit.
(d) UK Stamp Duty / SDRT. UK stamp duty and stamp duty reserve tax are primarily relevant to transfers of securities (i.e., shares and certain debt instruments) and are generally not applicable to transfers of intellectual property assets. However, this should be confirmed with UK solicitors, particularly if the IP migration is structured as a transfer of shares in a subsidiary holding the IP rather than a direct transfer of IP assets.
(e) Withholding Tax on Royalties. If, as an alternative to an outright transfer of IP, the restructuring is implemented through a licensing arrangement (with Cloudium UK retaining legal ownership but licensing the IP to the US entity in exchange for royalty payments), the royalty payments would be subject to UK withholding tax at the rate of 20% under the Income Tax Act 2007. However, the withholding rate is reduced to 0% under Article 12 of the US-UK Income Tax Treaty for qualifying royalties paid to a US resident that is the beneficial owner of the royalties and is entitled to the benefits of the treaty. Proper treaty claim documentation (including certification that the US entity is a qualifying person under the Limitation on Benefits article) must be in place before any royalty payments are made.
6. Coordination with Purchase Price Allocation. As noted above, the values assigned to the UK IP in the intercompany transfer must be consistent with the values assigned to those same assets in the Section 1060 purchase price allocation. Any post-closing restructuring that results in material inconsistencies between the PPA and the transfer pricing valuations could be exploited by tax authorities in multiple jurisdictions, each of which may assert that a higher value should be attributed to the assets within its taxing jurisdiction. We strongly recommend that the PPA be finalized before any IP migration is executed, and that a single, coherent valuation framework be employed across both workstreams.
7. Phased Migration. Given the magnitude of the potential UK tax exposure, we recommend considering a phased approach to the IP migration. Under this approach, certain categories of IP (e.g., customer relationships, which may have a more limited useful life and therefore a lower present value of future income) would be migrated first, with the more valuable technology IP migrated in a subsequent phase. A phased approach would spread the UK tax liability over multiple tax periods and would provide time to assess HMRC's response to the initial migration before proceeding with the transfer of higher-value assets. The feasibility and tax implications of a phased approach should be evaluated in consultation with UK solicitors and with the independent valuation firm.
C. Step 3: IP Migration from Cloudium Solutions GmbH
1. Identification of Intangible Assets. Cloudium Solutions GmbH holds the following intangible assets that are specific to the DACH market:
(a) Localized software adaptations for the German, Austrian, and Swiss markets, including customizations to the core Cloudium platform to accommodate German-language interfaces, local regulatory requirements, and DACH-specific business processes;
(b) German-language customer documentation, training materials, and user guides;
(c) Local customer contracts and relationships attributable to the DACH market; and
(d) Associated goodwill and going-concern value attributable to the German entity's operations.
While the aggregate value of these assets is substantially less than the UK-held IP, the German "function relocation" rules create the potential for a tax exposure that is disproportionate to the value of the individual assets being transferred, as discussed below.
2. Proposed Migration. The proposed restructuring contemplates the transfer or license-back of the German-held IP to the centralized US IP holding structure. The specific mechanism for the migration (outright transfer, contribution, or license-back) should be determined based on the results of the German tax analysis and the relative costs and benefits of each approach.
3. German Tax Implications. The German tax implications of the IP migration are as follows:
(a) German Corporation Tax and Trade Tax on Gain. The transfer of IP assets by Cloudium Germany at fair market value will be treated as a disposal for German corporation tax (Körperschaftsteuer) and trade tax (Gewerbesteuer) purposes. The gain on the disposal (i.e., the excess of the fair market value over the tax basis of the IP) will be subject to German corporation tax at approximately 15.825% (including the solidarity surcharge) and trade tax at approximately 14-17% (depending on the municipal multiplier applicable in Berlin), for a combined effective rate of approximately 30%.
(b) Function Relocation (Funktionsverlagerung) Rules. The German function relocation rules, codified in Section 1 of the German Foreign Tax Act (Außensteuergesetz, or "AStG") and the German Income Tax Act (Einkommensteuergesetz), provide that if a "function" (including the associated assets, risks, opportunities, and other advantages) is relocated from a German entity to a related foreign entity, the German tax authorities may assert the right to tax the entire "transfer package" (Transferpaket) at its fair market value. The transfer package concept is broader than the individual IP assets being transferred and may include goodwill, going-concern value, and the present value of future profit potential associated with the relocated function.
This rule is of particular concern in the present case because the proposed migration of IP from Cloudium Germany, if accompanied by a reduction in the German entity's functions, assets, and risks, could be characterized by the German tax authorities as a function relocation, potentially resulting in a tax liability that exceeds the gain that would be recognized on a simple transfer of the individual IP assets. The German function relocation rules have been the subject of extensive controversy and litigation, and the German tax authorities have been aggressive in their application.
(c) German Exit Tax Exposure. More broadly, if the IP assets leave German taxing jurisdiction as a result of the migration, Germany may assert departure taxation on the unrealized gains embedded in those assets. This is consistent with Germany's general approach to exit taxation under EU and domestic law.
(d) German-US Treaty Provisions. The US-Germany Income Tax Treaty may provide relief from double taxation to the extent that Germany asserts tax on the IP migration and the US also asserts tax on the corresponding income inclusion. The availability of treaty relief will depend on the specific character of the income (capital gains, business profits, or royalties) and the allocation of taxing rights under the treaty. We will undertake a detailed treaty analysis as part of the next phase of work.
4. Valuation. The valuation of the German-held IP should be performed using an OECD-consistent methodology, such as the comparable uncontrolled transaction (CUT) method or the discounted cash flow (DCF) method. Given the German function relocation rules, the valuation may need to encompass the entire transfer package rather than individual IP assets. We recommend that the valuation be performed by the same independent valuation firm engaged for the UK IP migration, in order to ensure consistency across the global valuation framework.
5. Mitigation Strategies. To mitigate the German function relocation risk, we recommend considering the following strategies:
• Retain sufficient economic substance and functions in Germany, such that the IP migration does not constitute a "relocation" of the entire function within the meaning of the German rules. For example, if Cloudium Germany continues to perform meaningful sales, customer success, and localization functions using the centralized technology under a license-back arrangement, the German tax authorities may be less likely to characterize the transaction as a function relocation.
• Consider a partial migration, under which only certain discrete IP assets (e.g., customer relationships) are transferred to the US, while the localized software adaptations and customer documentation continue to be owned by Cloudium Germany and licensed to the US entity.
• Engage in advance discussions with the German tax authorities to seek a binding ruling or to negotiate the scope of the taxable transfer package.
6. Coordination with German FDI Analysis. During the pre-closing due diligence phase, we determined that no foreign direct investment notification obligation was triggered under the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz, or "AWG") and the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, or "AWV") in connection with the acquisition, as Cloudium Solutions GmbH does not operate in a sector classified as sensitive under the AWV (e.g., defense, critical infrastructure, or health). We should confirm that the post-closing restructuring — including any transfer of IP or changes to the German entity's functions — does not trigger a separate FDI notification obligation. Based on our current understanding, no such obligation should arise, but we recommend that this be confirmed with German counsel.
D. Step 4: Restructuring of Indian Operations
1. Current State. Cloudium Technologies India Pvt. Ltd. employs approximately 2,400 individuals in Bangalore, Karnataka, and operates primarily as a captive service center providing R&D and customer support services to the Cloudium group. The Indian entity's current intercompany arrangement is a cost-plus service model, under which Cloudium India is compensated for its services at cost plus a mark-up of approximately 12% over total operating costs.
2. Proposed Restructuring. The proposed restructuring does not contemplate the migration of functions, assets, or risks out of the Indian entity. Rather, the objective is to maintain the existing cost-plus service arrangement but to recalibrate the mark-up to reflect the post-acquisition operating model, updated benchmarking data, and the increased scrutiny that Indian transfer pricing authorities apply to cost-plus margins for IT/software captive entities.
3. Indian Transfer Pricing Considerations. Indian transfer pricing is governed by Sections 92 through 92F of the Indian Income Tax Act, 1961, and the associated rules thereunder. The Indian tax authorities have a well-documented track record of aggressively scrutinizing the cost-plus margins applied by captive service centers of multinational enterprises, and India has among the highest rates of transfer pricing adjustments globally. In recent years, the Indian tax authorities and the Indian Tax Appellate Tribunal have routinely asserted that cost-plus margins for IT/software service providers should be in the range of 15% to 25% over operating costs, based on comparability analyses using Indian public company data.
Based on our preliminary review and in consultation with Glenmore Thornton LLP, we recommend that the cost-plus mark-up for Cloudium India be set in the range of 15% to 20% over total operating costs, supported by a contemporaneous benchmarking study using Indian comparable companies. This represents an increase from the current 12% mark-up and is intended to place the mark-up within the range that the Indian tax authorities are likely to accept as arm's length. The specific mark-up within this range should be determined based on the results of the updated benchmarking study, which we recommend commissioning promptly.
In addition, we recommend evaluating the applicability of the Indian transfer pricing safe harbor rules, which provide deemed arm's-length margins for certain categories of transactions, including IT-enabled services provided by Indian captive entities. If the safe harbor rules are applicable and the prescribed margins fall within an acceptable range, reliance on the safe harbor may reduce the risk of a transfer pricing adjustment and the associated compliance burden.
4. Permanent Establishment Risk. The restructured intercompany agreements must be carefully drafted to avoid inadvertently creating a permanent establishment ("PE") of Cloudium Inc. (or any other non-Indian group entity) in India. Under Article 5 of the US-India Income Tax Treaty, a PE may be created if an entity has a "fixed place of business" in India through which it carries on its business, or if a "dependent agent" in India habitually exercises the authority to conclude contracts on behalf of the foreign enterprise.
To mitigate PE risk, we recommend the following:
• Ensure that the intercompany service agreements clearly characterize the Indian entity as an independent service provider acting on its own behalf, rather than as an agent of the US parent;
• Avoid granting Indian-based personnel the authority to negotiate or conclude contracts on behalf of Cloudium Inc. or any other non-Indian group entity;
• Ensure that the US parent does not exercise day-to-day management or operational control over the Indian entity's employees in a manner that could be interpreted as creating a fixed place of business in India; and
• Review the scope of any secondment arrangements to confirm that seconded employees are not performing functions on behalf of the US parent that could give rise to a dependent agent PE.
5. India FDI and Competition Considerations. As confirmed in the prior memorandum dated December 10, 2023, no downstream investment approval was required under India's FDI policy in connection with the Cloudium acquisition, and no filing with the Competition Commission of India ("CCI") was required based on the Indian subsidiary's turnover. We do not anticipate that the proposed restructuring of the Indian entity's intercompany arrangements will trigger any FDI or CCI filing obligations, but this should be confirmed with Indian counsel if the scope of the restructuring expands beyond the recalibration of the cost-plus mark-up.
6. Indian Employment Obligations. The proposed restructuring of the Indian entity is limited to the recalibration of the intercompany cost-plus mark-up and is not expected to involve any changes to the entity's headcount, employee terms and conditions, or organizational structure. Accordingly, we do not anticipate any impact on the Indian entity's obligations with respect to gratuity, provident fund, or other statutory employee benefits. However, if the restructuring is expanded to include headcount changes or changes to employee roles, a separate analysis of Indian employment law implications would be required.
E. Step 5: Establishment of New Intercompany Agreements
The final step in the proposed restructuring is the establishment of a comprehensive suite of new intercompany agreements to replace the existing legacy arrangements and to govern the economic relationships among the restructured entities on arm's-length terms. The principal agreements to be established are as follows:
1. Central IP License Agreement. Following the completion of the IP migration (Steps 2 and 3), Cloudium Inc. (or the US IP holding subsidiary, if one is established) will serve as the centralized owner of the Cloudium group's core technology IP. The foreign subsidiaries (Cloudium UK, Cloudium Germany, and any other operating entities) will exploit the technology under license agreements that provide for the payment of arm's-length royalties to the US IP owner. The royalty rates should be established based on a contemporaneous transfer pricing analysis using appropriate comparables, and should include periodic adjustment provisions to ensure that the royalty rates remain arm's length as the business evolves, consistent with the "commensurate with income" standard under Section 482.
2. Intercompany Services Agreements. Certain shared services — including information technology infrastructure, finance and accounting, human resources, and legal — will be provided by centralized functions (likely housed in the US or UK entity) to the other group entities. Appropriate cost-allocation methodologies (e.g., direct charge, indirect charge based on reasonable allocation keys, or cost-plus where applicable) should be established and documented. The services agreements should identify the specific services to be provided, the allocation methodology, and the mark-up (if any) to be applied.
3. Data Processing Agreements. Given the cross-border flow of personal data among the Cloudium group entities, data processing agreements must be established to comply with the General Data Protection Regulation ("GDPR") applicable to the UK and German entities, as well as the Indian data protection requirements under the Digital Personal Data Protection Act, 2023. While data processing agreements are primarily driven by data privacy considerations rather than tax considerations, the terms of these agreements should be coordinated with the intercompany services agreements to ensure consistency.
4. Management Services Agreement. Any management or advisory fees charged by Solara Digital Infrastructure LP or Fund VI (or their affiliates) to the Cloudium group for portfolio company management, strategic advisory, or operational support services must be structured to satisfy the requirements for current deductibility under Section 162 of the Internal Revenue Code (as ordinary and necessary business expenses) and must not be recharacterized as non-deductible capital contributions or disguised distributions under Section 482 or other applicable provisions. The management fee arrangement should be supported by a contemporaneous analysis of the services provided and the arm's-length nature of the fees.
IV. Transfer Pricing Framework
A. Overall Transfer Pricing Policy Design
The restructuring described in Section III above will necessitate the establishment of a comprehensive, OECD-aligned transfer pricing framework that allocates income among the restructured entities consistent with the functions performed, assets used, and risks assumed by each entity (the "FAR analysis"). The objective of the transfer pricing framework is to provide a defensible, well-documented basis for the pricing of all material intercompany transactions, and to minimize the risk of transfer pricing adjustments by tax authorities in the US, UK, Germany, India, and any other relevant jurisdictions.
The key transfer pricing methodologies that will be relevant to the Cloudium restructuring are:
• Comparable Uncontrolled Price (CUP) Method: The CUP method compares the price charged in a controlled transaction to the price charged in comparable transactions between unrelated parties. The CUP method is generally considered the most reliable method where reliable comparables are available, but is often difficult to apply to transfers of unique intangible property.
• Comparable Profits Method (CPM) / Transactional Net Margin Method (TNMM): The CPM (under US rules) or TNMM (under OECD guidelines) compares the net profit margin earned by a tested party in a controlled transaction to the net profit margins earned by comparable uncontrolled companies. This method is commonly used for benchmarking the profitability of limited-risk entities such as captive service centers and limited-risk distributors.
• Profit Split Method: The profit split method allocates the combined profit of the controlled parties based on their relative contributions to the value creation, typically using asset-based, expense-based, or contribution-based allocation keys. The residual profit split method, which first allocates a routine return to each party and then allocates the residual profit based on relative contributions, is often applied to transactions involving high-value intangibles where both parties make unique and valuable contributions.
In addition to the selection of appropriate methodologies, the transfer pricing framework must address the following documentation requirements:
• Master File / Local File Documentation: Under OECD BEPS Action 13 and the corresponding domestic rules in each jurisdiction, multinational enterprise groups are required to prepare and maintain contemporaneous transfer pricing documentation consisting of a master file (providing an overview of the group's global business operations, transfer pricing policies, and global allocation of income and economic activity) and local files (providing detailed information on the material intercompany transactions of each local entity, the transfer pricing analysis supporting the pricing, and the comparables used).
• Country-by-Country Reporting (CbCR): The Cloudium group's global revenue exceeds the €750 million threshold for CbCR obligations under OECD BEPS Action 13 and the corresponding domestic implementing legislation. Accordingly, the group will be required to file CbCR reports with the relevant tax authorities, providing jurisdiction-by-jurisdiction information on revenue, profit before tax, income tax paid and accrued, number of employees, stated capital, retained earnings, and tangible assets. The CbCR filing obligation will likely rest with the ultimate parent entity (Fund VI or Cloudium Inc. after re-domestication) and will be required for fiscal years beginning after the Closing Date.
B. US Transfer Pricing (Section 482)
Section 482 of the Internal Revenue Code grants the IRS the authority to distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among commonly controlled entities if it determines that such distribution, apportionment, or allocation is necessary to prevent evasion of taxes or clearly to reflect the income of such entities. The Treasury Regulations under Section 482 set forth detailed rules for the pricing of intercompany transactions involving tangible property, intangible property, services, and loans.
For purposes of the Cloudium restructuring, the most critical aspect of the US transfer pricing rules is the "commensurate with income" standard for transfers of intangible property. Under this standard, the consideration charged for a transfer of intangible property must be commensurate with the income attributable to the intangible. This standard was introduced specifically to address situations in which a US taxpayer transfers valuable intangibles to a related foreign entity at a price that is determined at the time of the transfer but does not adequately reflect the actual income generated by the intangible over time. The commensurate-with-income standard effectively requires periodic adjustments to ensure that the compensation received by the transferor reflects the actual economic performance of the transferred intangible.
In the context of the Cloudium restructuring, the commensurate-with-income standard will be relevant both to the initial IP migration (where the US entity acquires IP from the UK and German subsidiaries) and to the ongoing royalty arrangements (where the US entity licenses technology to the foreign subsidiaries). The intercompany agreements should include periodic adjustment provisions that allow for the recalibration of royalty rates based on actual revenue and profitability data.
We also recommend that the Solara deal team evaluate whether to pursue bilateral advance pricing agreements ("APAs") with the IRS and the relevant foreign tax authorities (HMRC for the UK and the Bundeszentralamt für Steuern for Germany). A bilateral APA would provide prospective certainty on the arm's-length pricing of the intercompany transactions and would significantly reduce the risk of double taxation resulting from inconsistent transfer pricing adjustments by the US and foreign tax authorities. The APA process is time-consuming and resource-intensive, but the magnitude of the intercompany transactions in the Cloudium group — and the complexity of the IP migration — may justify the investment.
Finally, the values assigned to intangible assets in the Section 1060 purchase price allocation should be consistent with the transfer pricing valuations used for the IP migration. Any material inconsistency between the PPA and the transfer pricing analysis could be used by the IRS as evidence that one or both valuations are incorrect.
C. UK Transfer Pricing (TIOPA 2010)
The United Kingdom's transfer pricing rules, set forth in Part 4 of the Taxation (International and Other Provisions) Act 2010 ("TIOPA 2010"), adopt the OECD arm's-length principle as the standard for pricing transactions between connected parties. TIOPA 2010 requires that the terms of a transaction between connected persons be determined as if the transaction had been entered into between independent parties dealing at arm's length.
HMRC has devoted significant enforcement resources to IP-rich multinationals in recent years, and UK transfer pricing audits frequently focus on the pricing of IP licenses, management fees, and intercompany services. In the context of the Cloudium restructuring, the critical UK transfer pricing issue will be the valuation of the IP transferred from Cloudium UK and the adequacy of the royalty rates paid by Cloudium UK (as licensee) to the US entity (as licensor) under the post-migration licensing arrangement. Robust contemporaneous documentation will be essential to support the arm's-length nature of these arrangements.
As noted in Section III.B above, the UK diverted profits tax ("DPT") represents an additional enforcement mechanism that HMRC may deploy if it determines that the arrangements lack economic substance or involve entities with limited personnel, decision-making authority, or operational functions. The DPT applies at a rate of 25% and can be assessed on profits that HMRC determines have been artificially diverted from the UK. To mitigate DPT risk, the restructured operating model must retain meaningful economic substance in the UK, including sufficient personnel to perform the functions attributed to Cloudium UK in the transfer pricing analysis.
D. German Transfer Pricing (AStG Section 1)
The German transfer pricing rules are primarily set forth in Section 1 of the German Foreign Tax Act (Außensteuergesetz, or "AStG") and the associated German documentation regulations (Gewinnaufzeichnungsverordnung, or "GAufzV"). Germany applies the OECD arm's-length principle and generally follows the OECD Transfer Pricing Guidelines, but with certain domestic modifications that can significantly increase the tax exposure associated with cross-border restructurings.
The most significant German transfer pricing issue in the context of the Cloudium restructuring is the function relocation (Funktionsverlagerung) rules. Under these rules, if a "function" — defined broadly to include the associated assets, risks, opportunities, and other advantages — is relocated from a German entity to a related foreign entity, the entire "transfer package" (Transferpaket) must be valued and taxed at its fair market value. The transfer package concept goes beyond the sum of the individual assets and may include goodwill, going-concern value, workforce-in-place, and the present value of future profit potential that the German entity would have realized if the function had not been relocated.
The German documentation requirements under GAufzV are also more prescriptive than in many other jurisdictions, requiring detailed documentation of the nature and scope of the business relationship, the functions performed and risks assumed by each party, the contractual terms, the methodology used to determine the arm's-length price, and the comparables analysis. Documentation must be prepared contemporaneously and must be made available to the German tax authorities within 60 days of a request.
Given the complexity and risk associated with the German function relocation rules, we recommend engaging German tax counsel to advise on the specific mechanics of the IP migration from Cloudium Germany and to evaluate the possibility of negotiating a "hypothetical arm's-length test" (hypothetischer Fremdvergleich) with the German tax authorities. Under this approach, the arm's-length price for the transfer package is determined based on what a willing buyer and a willing seller would agree to in comparable circumstances, taking into account both the seller's minimum price and the buyer's maximum price.
E. Indian Transfer Pricing (Sections 92-92F)
Indian transfer pricing rules are governed by Sections 92 through 92F of the Indian Income Tax Act, 1961, and the Income Tax Rules promulgated thereunder. India has adopted the OECD arm's-length principle and provides for the use of standard transfer pricing methods (CUP, RPM, CPM, PSM, and TNMM). However, the Indian tax authorities have historically taken an aggressive approach to transfer pricing enforcement, and India has one of the highest rates of transfer pricing adjustments globally.
For the Cloudium restructuring, the principal Indian transfer pricing issue is the calibration of the cost-plus mark-up for Cloudium India's captive service center operations. As discussed in Section III.D above, we recommend a mark-up in the range of 15% to 20% over operating costs, supported by an updated contemporaneous benchmarking study. The benchmarking study should use Indian comparable companies and should be prepared in accordance with the specific requirements of the Indian transfer pricing rules, including the use of the "multiple year data" approach (three-year rolling average) and the application of the Indian comparability filters.
We also recommend evaluating the applicability of the Indian transfer pricing safe harbor rules (Rule 10TD through 10TG of the Indian Income Tax Rules), which provide deemed arm's-length margins for certain categories of transactions, including IT-enabled services provided by Indian captive entities to related foreign parties. If the safe harbor rules are available and the prescribed margins fall within an acceptable range, reliance on the safe harbor may reduce audit risk and simplify the I

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