1. Business Breakfast Seminar: "Give Yourself Credit for Innovation, Technology, and More: How to take advantage of U.S. and International R&D tax credits and other tax incentives" Presented by: Tony Burke, Director-Tax Services, RSM McGladrey, Inc. Bruce J. Kletsky, Vice President-Business Development, Braithwaite Global Inc. Serge de Blois, CEO, Braithwaite Global Inc. Many thanks to RSM McGladrey, Inc. and Braithwaite Global Inc. for sponsoring this event

2. Tony Burke Director, Tax Services tony.burke@mcgladrey.com 312.634.3932 Give Yourself Credit: US Tax Credits and Incentives

3. McGladrey  RSM McGladrey: professional services firm providing accounting, tax and business consulting services  McGladrey & Pullen: partner-owned CPA firm providing audit and attest services  When considered together, the companies rank as the 5 th largest US provider of audit, tax, and business consulting services  More than 90 U.S. offices  Alternative practice structure  Largest member of RSM International 2

4. RSM International  One of the most highly integrated and robust professional service resources in the world today  6 th largest worldwide association of independent accounting and consulting firms*  32,000 professionals in 736 offices throughout 76 countries  U.S. $3.8 billion in combined fees in 2009  Global methodologies and quality assurance  Organized like the Big Four but scaled to fit the global needs of the companies we serve *International Accounting Bulletin 3

5. US Credits and Incentives  Goals of Today’s Presentation What is the credit or incentive? Do I Qualify? What’s The Benefit? 4

6. IC-DISC  What is it? A special purpose entity that is not subject to tax owned by US operating entity Reports income from qualifying export sales as taxable income which is then paid back to the taxpayer as a qualified dividend  Do I qualify? US Corporation, S Corporation, Partnership, and Limited Liability Companies can use this Set up an IC-DISC legal entity Profits on qualifying export sales included in IC-DISC tax filing Declare a dividend on the qualifying income from the IC-DISC What’s the benefit? Taxable income on qualifying export sales is taxed at 15% versus 35% 5

7. Domestic Manufacturer’s Deduction (DMD)  What is it? Deduction for tax purposes of up to 9% on qualifying taxable income from domestic production Deduction is limited to lesser of qualified production activity income (QPAI) or taxable income times 9%  Do I qualify? Domestic Manufacturing, Producing, Growing, or Extracting product Adding more than 20% of the product cost through domestic manufacturing  What is the benefit?  Permanent deduction from taxable income of up to 9% of QPAI  Reduction of overall effective tax rate (C Corps) 6

8. 100% Bonus Depreciation  What is it? Ability to expense 100% of qualifying fixed asset additions for tax purposes  Do I qualify? Acquire new fixed assets with a 20 year tax life or less during 2011 (decreases to 50% in 2012)  What is the benefit?  Immediate expensing of the cost of the asset  Time value of money savings on the accelerated deduction 7

9. Cost Segregation  What is it? Opportunity to accelerate depreciation on new construction projects, expansion of existing facilities, and acquired buildings Accelerated depreciation happens through re- classifying assets with a long depreciable life to shorter lives  Do I qualify? Build a new facility, expand an existing facility, or acquire an existing facility  What is the benefit?  Time value of money savings on accelerated depreciation  Shorter lived assets may qualify for 100% depreciation 8

10. Energy Incentives - §179D Deduction  What is it? A tax deduction up to $1.80 per square foot to owners or tenants of new or existing buildings that invest into certain energy efficient commercial building property.  Do I qualify? Install new lighting, heating, ventilation, HVAC, hot water heaters, or overall building upgrades that are certified to reduce the annual energy and power costs by 50% or more.  What is the benefit?  Time value of money savings due to immediate expensing of costs that would otherwise be capitalized for tax purposes 9

11. Work Opportunity Tax Credit (WOTC)  What is it? Credit for percentage of qualifying wages paid in the first year of employment to certain new hires who are qualifying veterans, ex-felons, and troubled youths to name a few (many other groups of people qualify as well)  Do I qualify? Hire a qualifying employee Complete necessary paperwork to obtain the credit  What is the benefit? Credit based on a percentage of wages paid up to 40% of wages paid Credit is capped at differing amounts based on the group the hire falls into. Credit could be as much as $9,000 depending on the qualifying employee 10

12. State Credits/Incentives – Illinois Edge Credit  What is it? Incentive program to increase economic development in Illinois. (Almost all states have similar type programs either statute based or negotiated). Credit based on the IL withholding for new jobs created or retained in Illinois.  Do I qualify? Look to expand employment in Illinois or re-locate operations to Illinois Need to have another option outside of Illinois Minimum $5 million in capital improvements and 25 new jobs created  What is the benefit? Non-refundable income tax credit based on a percentage of the IL withholding on wages paid to newly created or retained jobs Credit is available for 10 years once the project is completed 11

13. Give Yourself Credit for Your Innovation Bruce J. Kletsky Vice President Business Development bkletsky@braithwaiteglobal.com 630.258.4981

14. Atlanta, Georgia (hdq), with offices in Massachusetts, Texas, Illinois, Connecticut, Canada, UK, Ireland, Spain, France, Brazil Have over 100 professionals worldwide  CPAs and Attorneys  Engineers, Software Programmers, Scientists Only provide research tax credit and audit support services Works with CPA firms and Industry  Be your back office  Introduce R&D tax credits to CPA clients

15. Historical Perspective Not a new tax law – In existence since early 80’s Political Agendas – Interpretative Guidance Treasury writes law – IRS enforces and collects 2001 Regulatory Intent Final Regulations – Taxpayer victory  Activity Definition  Documentation Standards

16. What is Research and Development?  Seeks to solve a technical problem  Eliminates uncertainty  Innovation  Process improvement and development  Research and Development does not have to be…… Top secret, Classified or Rocket Science!

17. Why companies Don’t Take the R&D Credit? Too good to be true It’s some sort of “tax shelter” I will get audited I won’t qualify I don’t understand it Our work is confidential Too much work to be worth it I’m too busy I didn’t know about it My CPA has it handled Not doing R&D We get paid for all our R&D

18. R & D regulations from 1981-2001 Identify the QRAs – qualified research activities  Was discovery test (patents, inventions)  Was extensive documentation Calculate the QREs – qualified research expenditures  Wages  Supplies  Contractors Calculate the Credit – IRS Form 6765

19. New Regulations Proposed 2001, Final 2004  To keep innovation and creativity in the U.S. The proposed and final regulations: 1. Eliminated the Discovery Requirement 2. Modified the Documentation Standard R&D is no longer only:  scientists, lab coats, patents, etc. Clearly Defined: Congress made it clear through legislative history that the credit should NOT impose unreasonable record-keeping requirements.

20. New Funding $ 13 B in new funding has been made available to allow for the enhancements to the program

21. Activities must meet a four part test to be considered R&D for tax purposes Test # 1 – Uncertainty - Activities must be directed towards elimination of uncertainty as to capability or method or appropriate design

22. Test # 2 – Activity must be for the purpose of discovering something technological in nature  Activity must be useful in the development or improvement of a product, process, computer software, technique, formula or invention would meet this test.  Discovery must rely on physical, biological, engineering or computer science.

23. 2. Test # 3 – Activities must constitute elements of a process of experimentation Must be a process designed to evaluate one or more alternatives to achieve a result where the capability or method or appropriate design is uncertain at the beginning of the research Involves the identification of an uncertainty, one or more alternatives to remove the uncertainty, and the conduct of a process of evaluating the alternatives

24. Test # 4 – New or improved business component Must relate to new or improved function, performance, reliability or quality, production process or technique

25. Example of Project that Meets the Four Tests #Test Name 1UncertaintyCompany wanted to improve an existing chair control mechanism and was uncertain as to how to design it. 2Technology The chair mechanism would be used in a new office chair. The work would rely on mechanical engineering sciences. 3 Experimentation Two design alternatives were considered. A prototype of each was prepared, tested and evaluated to attempt to eliminate the uncertainty. 4Purpose/ Improved Process The purpose of the research was to improve the life cycle performance of the mechanism.

26. Eligible Costs Wages – W-2, Box 1 Supplies – consumed in the research process 65% of Qualified Contract Research

27. Examples -Qualifying Industries Tool & Die Biotech Musical Instruments Wineries Apparel Waste Management Food Processing Ag-Business Hi-Tech Gov’t Contractors Manufacturing Chemicals Engineering Firms Game Developers

28. . BGI is an independent tax advisory firm that works with industry, CPA firms, and their clients, to assist in achieving the benefit of Federal and State sponsored R&D tax credit incentive programs. For more information please visit our web site at: www.braithwaiteglobal.com Bruce J. Kletsky bkletsky@braithwaiteglobal.com Vice President Business Development 888.802.5999, ext 323 630.258.4981

29. 28 Presented to: French American Chamber of Commerce Chicago, September 19, 2011

30. 29 Agenda Why and How Governments invest in private R&D Overview of six R&D tax incentive programs Where are they Spending the Money?

31. 30 Why Governments invest in private R&D

32. 31www.globalr-d.com31 Produce Technological Advancements Contribute to Productivity competitivity and growth Improve our living standards

33. 32 How Governments invest in private R&D

34. 33www.globalr-d.com33 Four Major Mechanisms: Public research centers Research contracts Grants and contributions Tax incentives (credit and super-deductions)

35. 34www.globalr-d.com34 Why Tax Incentives: Cheaper to deliver (no prior approval) Not subject to trade retaliations (GATT) Industrial secret better protected Not a discretionary process but a legal one And

36. 35 You decide where to put your R&D money !

37. 36 Overview of six R&D tax incentive programs

38. 37www.globalr-d.com37 The tax definition R&D is not that you think! It is more than white lab-coat It’s Experimental Development As defined in Frascati Manual (OECD, June 1963 and revised)

39. 38 Legal designation, Claiming principles, Type of incentives Credit for Increasing Research activities/Resear ch Tax Credit (RTC) or Alternative Simplify Credit (ASC) Crédit d’impôt recherche (CIR) Scientific Research and Experimental Development (SR&ED) R&D Tax Relief Research and Development Tax Credit Incentivos Fiscais à Pesquisa, Desenvolviment o e Inovação (P,D&I), “Lei do Bem”. Incremental in comparison to base years (Regular or ASC) Volume with additional credits for 2 first years Volume « Incremental » with 2003 as base year. Now volume based Volume Non refundable Credit Refundable Credit Non refundable credit only refundable for SME Super deduction only refundable for SME Refundable Credit Super deduction not refundable

40. 39 Statute of limitation (prescription), Incentives and Savings Regular credit: 3 years after the filing date ASC: Timely Generally one year 18 months after fiscal year end Deadline is 24 months after the taxation year Timely ASC: 14% of QREs less 50% of average QREs for 3 preceding years Or 7% if no QREs for the 3 preceding taxable years Regular Credit: 20% of QREs exceeding the Base Amount limited to 50% of QREs of the current year 2011 and after:  50% of expenditures for the 1 st year and  40% of expenditures for the 2 nd year Following years:  30% up to €100 M of expenditures and 5% on expenditures over €100M 20% deferrable SMEs: 35% refundable on the 1 st $3M of expenditures Super Deduction of 130% SMEs: Super Deduction (SD) 175% or Tax credit (TC) of 24.5% limited to the amount income tax paid on salaries Tax credit of 25% plus a super tax deduction of 12.5% (12.5%x12.5%=1.562 5%) amounting to savings up to 26.5625% Super Deduction of qualified expenditures can range from 160% to 200%

41. 40 Eligible Expenditures Wages √√√√√√ Supplies √√√√√√ Contracting √ (65%) √√ √ (65% SME) √√ Overheads √ (50% of Salaries) √ (65% of Salaries) √ Patent Cost √ Equipment √√√

42. 41 Special Features Credit above the line (IFRS & GAAP) √ Restriction on IP retention √√ Refunda- bility √ √ (SME ) √ Carry back and forward 1 back 20 forward N/A 1 back 20 forward Indefini- tively N/A Restriction on capitalizing R&D √

43. 42 Effective Saving Range Effective rate of assistance 6.5% to 14% 30% to 50% 6% to 14% 8% to 24.5% 26.56% 20% to 34% Significant other R&D incentives (Provinces /States) √√√√

44. 43 Where are they Spending the Money?

45. 44 Source: Own computation from U.S. Department of the Treasury Report - March 25,2011; Internal Revenue Service

46. 45 Source: Own computation from U.S. Department of the Treasury Report - March 25,2011; Internal Revenue Service

47. 46 Source: Own computation from U.S. Department of the Treasury Report - March 25,2011; Internal Revenue Service

48. 47 Source: Own computation from U.S. Department of the Treasury Report - March 25,2011; Internal Revenue Service

49. 48 Source: Own computation from US, Canada, UK, France, Brazil and Ireland Statistics and Treasury Departments

50. 49 Source: Own computation from US, Canada, UK, France, Brazil and Ireland Statistics and Treasury Departments 2004-20102004-20092006-20092004-20082004-20072006-2008

51. 50 Source: Own computation from US, Canada, UK, France, Brazil and Ireland Statistics and Treasury Departments

52. 51 Source: Own computation from US, Canada, UK, France, Brazil and Ireland Statistics and Treasury Departments 2004-20102004-20092006-20092004-20082004-20072006-2008

53. 52 Source: Own computation from US, Canada, UK, France, Brazil and Ireland Statistics and Treasury Departments

54. 53 Source: Own computation from US, Canada, UK, France, Brazil and Ireland Statistics and Treasury Departments 2004-20102004-20092006-20092004-20082004-2007

55. 54 2004 -Utilization Rate – US vs. Canada Source: Own computation from US and Canada Statistics and Treasury Departments

56. 55 2008 -Utilization Rate – US vs. Canada Source: Own computation from US and Canada Statistics and Treasury Departments

57. 56www.braithwaiteglobal.com56 Thank You ! Merci ! Obrigado ! Questions / Comments?