Brazil transfer pricing regulations and the pharmaceutical industry IMPORT TRANSACTIONS EXPORT TRANSACTIONS CUP/PIC COST+20% RPM / PRL (40% GM for Pharma) CUP/PIC COST + 15% RPM / PRL (15%PVA/PVV30%) Product comparability criteria are difficult to meet in our industry C+ not applicable for imports as it fails to remunerate foreign assets & functions SOLE POSSIBILITY FOR PRICING INTERCOMPANY SUPPLIES IN PHARMA: RPM/ PRL Fixed gross margins defined by industry: for instance the same rate was retained for Pharmaceuticals and Medical Equipment Product by product pricing with no room for compensation or intentional set offs Technical possibility to account for importation of non finished goods Asymmetry on inbound and outbound margins, both not taking into account important functional analysis items like assets, functions and risks.

PHARMA VALUE CHAIN AND BRAZILIAN TRANSFER PRICING REGULATIONS: HIGH LEVEL REVIEW (1/2) Starting point: normalized consolidated Profit and Loss statement of a pharmaceutical multinational based on diversified Pharma MNEs accounts FOR SOLE ILLUSTRATION PURPOSES Distributor’s profits with a 40% GM GM 40% Local Selling expenses 22% COGS EBIT 18% 70% GROSS MARGIN Selling and general expenses Local Selling expenses Global/Regional Foreign Related Parties R&D GM 30% Global/Regional 26% 22% EBIT R&D EBIT 8%

A mandatory gross margin of 40%, in our view: PHARMA VALUE CHAIN AND BRAZILIAN TRANSFER PRICING REGULATIONS: HIGH LEVEL REVIEW (2/2) A mandatory gross margin of 40%, in our view: generates an allocation of profits that might not be in line with the global value chain of diversified pharmaceutical companies And therefore generates a high pressure in audits of foreign related parties Within pharmaceuticals, the generics segments and consumer healthcare face an increased pressure as their system gross margin is significantly lower does not cope with the specificities of a given economic operator or of a given moment in the life cycle of a company The EBIT generated by such policy -and therefore the taxable base- depends on the level of local expenditures Which itself depends on the level of maturity of each product or portfolio of products: it could lead to excess profits or limited profits or losses in case of either a highly mature portfolio of products or conversely a series of significant launches of products In other terms, a fixed GM% does not take into account facts and circumstances of the taxpayer

PHARMA VALUE CHAIN AND BRAZILIAN TRANSFER PRICING REGULATIONS: additional items of interest The RPM method with a fixed level is deemed to have several benefits Simplicity of application and creates a safe harbor Copes with the absence of comparables / economic equivalents It is based on a transactional approach => easier to implement and to verify Over years what we have experienced can be summarized as follows The application of the method is particularly burdensome for taxpayers The deemed simplicity of the method over time has not prevented from significant audits The transactional approach can generate a significant volatility of transfer prices to comply with the fixed margin on a product code by product code, raising customs questions. It generates a certain volatility of the EBIT of the distributing companies in Brazil, and therefore of the taxable base The industry operates by managing a portfolio of products and not in a product by product basis A significant amount of controversy with the foreign tax administrations that in some cases has generated double taxation situations