1. Case Study Facts – Organic Growth into Canada ©2011 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. Canada (distribution) (IP – U.S.) USP

2. Case Study Facts – Expansion by Acquisition - Canada ©2011 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. Canada-L (distribution) Canada-T (manufacturing) (IP-Prod.) USP

3. ©2011 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 1.U.S. Multinational (“USP ”) first sets up Canadian subsidiary to distribute in Canada. USP manufactures electronic equipment (Product 1) which it sells in U.S. through unrelated distributors. 2.Canadian subsidiary (“Canada-L”) will perform some light assembly, packaging and distribution. Canada-L will sell only in Canada. 3.After 3 years, USP wants to further expansion into Canada. Has decided to perform some manufacturing in Canada of an enhanced version of Product 1 – Product 1A. Rather than expand to meet this demand, it has decided to acquire Canada-T. 4.Canada-T is profitable, and has manufacturing capabilities. Canada-T has its own legacy product 2, and will be retooled to manufacture Product 1A. Canada-T will license certain rights to Product 1 as a platform for Product 1A. 5.The acquisition value of Canada-T will be C$20 million. Case Study Facts

4. ©2011 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 1.Should USP set up subsidiary in Canada or branch? 2.If subsidiary, should “entity classification election” be made to treat as “disregarded entity”. Would need “unlimited liability” company – and given 5 th Protocol, better not to make election if some cash repatriation anticipated given denial of treaty benefits for hybrid. 3.If no election made, and all sales within Canada, no subpart F, some deferral. 4.Canadian combined federal and Ontario provincial rate less than top U.S. marginal rate combined with Illinois. Accordingly, better not to have “stripped distributor”, i.e. more functions performed in Canada, higher margin, more deferral. 5.Transfer pricing issue between U.S. and Canada. 6.Financing of initial capital. Debt:equity rules. Better to fund more with equity given rate arbitrage. Case Study Issues – Organic Growth

5. ©2011 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A. 1.Should USP acquire shares of Canada-T? 2.Can Canada-L and Canada-T file on “consolidated basis”? 3.Any step-up potential with regard to Canada-T? 4.Financing acquisition – debt:equity ratio. 5.Transfer pricing issue between U.S. and Canada. 6.Financing of initial capital. Debt:equity rules. Better to fund more with equity given rate arbitrage. 7.Transfer pricing issue with regard to royalty. Case Study Issues – Acquisition

6. Canada: Inbound Selling USP sells goods to Canada Carrying on business in Canada actual COB v. deemed COB reporting C-corp v. LLC Dependent v. Independent Agents (Selling and Promotion Network in Canada). Exemption from Canadian taxation under the Canada-US Tax Treaty No taxation unless USP has a PE in Canada Fixed Place of Business Executive and Service PE Advertisement/Warehousing Benefits: no reporting/allocation unless allocable to PE, simple to set up/administer.

7. Servicing Servicing: COB in Canada Issues: Deemed PE due to the presence of employees in Canada Canadian withholding for services in Canada Profits allocable to PE: reporting allocation of profits transfer pricing

8. Organic Growth: Subsidiary in Canada Tax Rate: combined Can/provincial – 26 percent (Ontario) Choice of entity: Inc. v. ULC Transfer pricing re all transactions with USP Purchase of goods for resale/manufacturing Management fees/allocation of common expenses Financing Distribution of profits to USP Dividends Capital Various deductible payments (management fees/interest, etc.) Allocation of profits: actual Tax Reporting: Per entity (no consolidation for Can tax purposes)

9. Growth by Acquisition Choice of entity for Canada-T: Inc. v. ULC Choice of HoldCo: LLC v C-corp Acquisition Structures pushing the debt down (profitable companies) post-acquisition bump Implications of the change of control

10. Growth by Acquisition Repatriation of Earnings and Profits Dividends from ULC Licencing Fees Debt Financing Debt push-down on the acquisition Related party interest to USP Thin-cap rules R&D: Provincial and federal SRED Reporting: actual allocation of profits, on per entity basis (no Canadian consolidation) Transfer pricing/Advance Transfer Pricing