CLASSIFICATION SHEET

This document relates to the following request:

16July2010
References: CDT/SELL/N LKL/Q27 l 0030M-GAHO

Client(s) Fiscal number(s):

Shire Holding Europe N2 S.a r.1.- 2008/24/17428
Shire Holdings Ireland No2 Ltd, Luxembourg branch - 2008 32 00163

- - - - - - - - - - - - - - - - - - - - - - - - -- -

1. Key topics: Profit Participating Facility

2. Name of the advisor : PwC

3. Corporate group's name, or fund sponsor: Shire Pie
4. Name of the project:
5. Amount intended to be invested: more than USO 6.25bn
6. Date of receipt:

SUREAtJ lYtMPOstftON SOC. El

E~ITREE

PricewaterhouseCoopers
Socicte responsabilite limitee
Reviseur d'entreprises

400, route d'Esch

For the attention of Mr Marius Kohl

Administration des Contributions Directes
Bureau d'lmposition Societe VI
BUREAU D'IMPOSITION SOC. 6
18, Rue du Fo1t Wedell
t:=r..ITR~E
L-2982 Luxembourg

B.P. 1443
L-1014 Luxembourg
Telephone +352 494848-1
Facsimile +352 494848-2900
www.pwc.com/lu
info@lu.pwc.com

16 JUIL. 2010
14July2010
References: CDTIS ELUNLKUQ27 l 0030M-GAHO

Shire Holding Europe N2 S.a r.1.- 2008/24/17428

Shire Holdings Ireland No2 Ltd, Luxembourg branch - 2008 32 00163
Dear Mr Kohl,
We discussed in our meeting dated 10 March 2010 the tax treatment applicable to the
transactions foreseen by our client. This letter aims at confirming the conclusions reached
during our meeting and will serve as a basis for the preparation of the tax returns of the
Luxembourg entities involved.

A.

Background

A.I Restructuring
1.

Shire group has a Luxembourg financing structure involving Shire Holdings Europe
N2 Sari ("SHES2") and Shire Holdings Ireland N2 Ltd Luxembourg branch
("Lux PE") (we refer to our letter dated 16 July 2008 referenced
SAD/JOMO/SELUQ2708127M-CDT
and
14 January 2009
referenced
SAD/GAHE/SELIJBSLE/Q27081 87M-CDT, hereafter referred to altogether as
"the Letters").

2.

SHES2 and Lux PE are part of a tax unity and are involved in a lending activity
financed by borrowings on a consolidated basis for a global amount of more than
USO 6.25bn.

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f'R/cEWA1fRHousf[roPERS I
3.

For internal and practical reasons, Shire Group contemplates to transform the loans
between Lux PE and Shire Holdings Ireland No 2 Ltd ("SHIL2") into a Profit
Participating Facility ("PPP') with retrospective effect as from 1 January 2009 and
with an initial draw down of approximately USO 3.7bn on 1 January 2009, a
second drawdown of approximately USO 2.6bn on 9 January 2009 and further
draw downs as required.

4.

In addition to its existing financing activity, SHES2 may in the future w ish to
invest in money market funds generating investment income on investment
operations. rt is proposed that the aforementioned PPF would also finance the
investment in the money market funds.

5.

For your information, you will find enclosed a description of the Shire Group in
Appendix 1, a chart of the final structure in Appendix 2 and the tax analysis of the
PPF in Appendix 3.

A.2

Profit Participating Facility

6.

The PPF will finance the lending activity on a consolidated basis between Lux PE
and SHES2. The income generated by the lending activity could either be
reinvested in Financing Investments (as described in the PPF Agreement) or
invested in Participations Investments (as described in the PPF Agreement). In that
case, an amount corresponding to the amount reinvested will be deemed to have
been repaid by Lux PE and draw down under the PPF in case of reinvestment in
Financing Investments or reinvested in Lux PE's branch capital in case of
reinvestment in Paiticipations Investments. The PPF will have the following
characteristics:

PPF
Amount

PPF facility of USD 9bn

Currency

USD

Remuneration

0.5 % fixed interest + variable interest ( 100% of the adj usted

profits' of SHES2 Jes a margin 121

Maturity date

Date on which SHES 2 makes a final disposal (by way of

assignment, sale, liquidation or otherwise) of 100% of the
Financing Investments which shall not exceed 49 years from
the date of the execution of the Agreement.

Risk level

Limited recourse

( I) Variable interest is equal to adjusted profit after the fixed interest on the PPF p1incipal amount and after deduction of losses and the
direct and indirect costs related to the financing activity of SHES2.
(2) Margin percentage will depend on the income/gain derived from the lending activity (i.e.. under the first draw-down equal to
approximately USO 3.7bn. the margin will be 1/32%: as front the second drawdown of USO 2.6bn occurring on 9 January 2009. the
margin will he 1/64%) please see B2.

(2)

B.

Applicable Luxembourg tax regime

B.1

Potential investment in US money market fund

7.

SHES2 may in the future consider investing in money market funds, especially in
the US.

8.

In order to do so, SHES2 would use funds from its financing activities which it
will re-invest in the said market funds.

9.

The income received by SHES2 on the said investment will be dividends, interest
or capital gains depending on the legal form of the fund and will be subject to tax.

B.2

Lending activity financed by borrowings on a consolidated basis

10.

Lux PE and SHES2 would have, on a consolidated basis, a lending activity

(including possible investment in US money market funds), financed by
borrowings (PPF). Please refer to our analysis in Appendix 4 concerning the
qualification of the PPF as debt.

11.

Given the limited risks on these activities, a minimum profit margin reflecting the
financing activity of the Luxembourg entities (i.e. Lux PE and SHES2) should
amount to 1/32% from I January 2009 to 9 January 2009, the outstanding amount
on-lent being over USD 3.7bn, and to 1/64% of the outstanding amount on-lent as
from 9 January 2009 to the extent the amount of the debts and receivables involved
in the transaction exceeds USD 6.25bn. Such margin will be taxed each year at the
standard Luxembourg tax corporate income tax, municipal business tax and net
wealth tax.

12.

The income deriving from SHES2 financing activity (including possible investment
in US money market funds) could be re-lent to group companies ("Financing
Investments" as defined the PPF agreement) or re-invested in participations
("Participation Investments" as defined the PPF agreement).

13.

In case of increase of the Financing investment through relending of the income

deriving from SHES2 financing activity, the fixed and the variable interest under
the PPF due by Lux PE to its head office but not paid should be treated as being
repatriated to its head office and immediately reallocated to the Lux PE under a
new drawdown.

14.

In order to respect the consolidated financing arTangements, the interest on

Financing Investments due by Lux PE to its head office but not paid should be
treated as being repatriated to its head office and immediately reallocated to Lux PE
in a form of branch capital if the interest received by SHES2 has been reinvested in
Participation Investments.

(3)

15.

Similarly, in case all or part of the Financing Investment would have been repaid
and reinvested in Participation Investments, a co1Tesponding amount under the PPF
will be deemed to be repaid and converted into branch capital, to respect the
consolidated financing arrangements.

16.

On the disposal of the financing investments financed by the PPF, in the case where
a capital loss would be realized at the level of SHES2 upon the disposal of the
investments, based on the Limited Recourse Clause of the PPF between SHIL2 and
Lux PE, Lux PE would only be liable to repay its debt towards SHIL2 up to the
realised amount of the investments and would therefore realize a gain on the PPF.

17.

In this case Lux PE would be in a situation similar to the situation of a company

benefitting from a hidden capital contribution. The Luxembourg administrative
doctrine defines indeed the hidden capital contribution as the granting of an
advantage between related persons that is motivated by shareholding's
relationship 1

18.

Based on the above, from a tax point of view, any net profit within the tax unity as
a consequence of the application of the Limited Recourse Clause in the PPF should
be seen as resulting in a hidden branch contribution granted by SHIL2 to Lux PE.

B.3

Debt/equity ratio

19.

Considering that Lux PE and SHES2 are involved in a lending activity financed by
bo1Towings on a consolidated basis on one hand and that Lux PE's liability is
towards its head office on the other hand, no debt/equity ratio will apply in the
hands of Lux PE.

Elude lic;calc sur r lmp()l Sur le Rcvcnu des Collcctivites. Guy I lcintl. Janvier 1999, p. 6Kss.

(4)

fJR/cEWA1fRJ-tousE(roPERS I
We remain at your disposal should you need any further information and would like to
thank you for the attention that you will give to our request.
Yours sincerely,

(~
Catherine Dupont
Partner

Geetha Hanumantha Rao

Senior Manager

Appendices
Appendix 1: Description of Shire Pie group
Appendix 2: Final chart structure
Appendix 3: Tax treatment of the PPF

This rax agreement is hosed on the farts as presented to Pricewaterho11seCoopers S.a r.I. as m the date the advire was g i11'11. The
agreem('llt is dep<'1ulent 011 specific facts and rircumstanres and 111ay 11ot he appropriate to another parry than the one for w/1irh it uas
prepared. 711is tax agreement 11as prepared with only the i111erests of Pricewc11e111ouseCoopers l.LP's Clie11t. Shire Pharmacewicals
Group Pie in mind. anti was 1101 planned or rarried out in contemplation ofany use hy any 01her parly. PricewaterhouseCoopers S.a r.I..
its partners, l'lllflloyees and or age111s. neither owe nor acrept any d11ty of rore or any responsihility to any other party. whether in
contract or in

fort

(i11c/11di11g wi1ho111 limiration, negligence or breach of sta111101y duty) howeier arising. mu/ shall 1wt be /iah/e in

respect oftmy loss. damage or expense of whotever 11m11re which is caused to any other pony.

(5)

Appendix 1
DESCRIPTION OF SIDRE PLC GROUP
l.

Founded in 1986, Shire is a rapidly growing global specialty biopharmaceutical

company, headed, since 23 May 2008, by Shire pie.

2.

The Shire Group markets products to defined customer groups and is organized into
two divisions: Specialty Pharmaceuticals ("SP") and Human Genetic Therapies
("HGT"). Shire's HGT division focuses on single mutation genetic diseases and
the science that offers hope to those who suffer from such rare conditions as Hunter
syndrome, Fabry disease, Gaucher disease, Sanfilippo Syndrome and
metachromatic leukodystrophy. Through it's SP division, Shire focuses on small
molecule medications within the therapeutic areas of Attention Deficit
Hyperactivity Disorder ("ADHD"), where it maintains a leadership position and
gastrointestinal disease, among others.

3.

Shire has a global sales and marketing infrastructure with a broad portfolio of
products which are marketed in over 50 countries worldwide. The group has its
own direct marketing capability in over 25 countries including the US, Canada,
UK, Republic of Ireland, France, Germany, Italy and Spain and also covers the
other significant pharmaceutical markets indirectly through distributors in Austria,
Denmark, Finland, Japan, Norway, Russia, Singapore, South Africa, South Korea
and Thailand.

4.

With corporate headquarters in Dublin, Ireland ("Shire pie"), Shire's primary

operational sites on the US are in Chesterbrook, Pennsylvania in respect of its SP
division and Lexington, Massachusetts in respect of its HGT division. Shire's UK
operations are based in Basingstoke, Hampshire. Shire has almost 4,000 employees
worldwide.

5.

Shire has revenues for the full year 2009 of USD 3,008 million. The group aims, by
2015, to have 50% of its sales coming from outside of the traditional US and
European markets. M&A activity of the Group during the last ten years has resulted
in seven completed mergers and acquisitions.

6.

Today, as a global specialty bio-pharmaceutical company listed on the London and

NASDAQ exchanges, Shire is one of the fastest-growing pharmaceutical
companies in the world. It is a company with a portfolio of top-selling products and
promising late-stage development candidates.

(6)

Appendix 2

FINAL CHART STRUCTURE (ABRIDGED)

SHIL 2
(Ire)
PPF-USD
[6.25bn)

Tax unity

SHES2
(Lux)

Loans - USO [6.25bn]

usoo

Shire Group
Companies

US market
fund

(7)

Appendix 3
Tax treatment of the PPF
A.

Tax classification of the PPF as debt

l.

According to the commentaries to the income tax law (commentaries included in

"Projel de Loi No 571" (1955) on the former article 114 LITL (now article 97
LITL) on income from participation, where a profit paiticipating facility bear a
minimum fixed interest rate, payable even when the company is in a loss position,
and provided the principal amount of the facility is repayable before the
reimbursement of the company's share capital, a profit participating facility should
continue to be treated as debt for Luxembourg tax purposes.
The same treatment should apply to a branch.

2.

In the case at hand, the fixed interest will accrue without taking into consideration
whether SHES2 or Lux PE are in profit or loss position. Consequently, the PPF will
be qualified as debt for both net wealth tax and income taxes purposes, and interest
thereon will be deductible under the same conditions as apply to fixed interest debt.

B.

Classification of PPF payments as interest

3.

Authors have examined the question whether the definition of "dividend" given bf
the Luxembourg income lax law could include payments accounted for as interest .
Taking a contrario the key criteria used to define a payment as dividend, we can
conclude that the following criteria should be refen-ed to in order to define a
payment as interest:

No entitlement to the ongoing profit (including the profit reserves); and

No entitlement to the liquidation proceeds.

4.

Under this interpretation, the payment of an amount wh ich is not directly related to
the entire profit of the borrower, nor to the liquidation proceeds, is not considered
as a dividend.

5.

Based on the above, considering the tax unity globally, since the variable interest
on the PPF will be dependent on the profit realized before Luxembourg tax of
SHES2, and not profit after tax, the variable interest will be qualified as interest and
not as a repatriation of profit between the Lux PE and its head office.

A. Steichen. "Pn.\:is Ile llroit fisca l Ile I'cntrcprisc". Editions Saint P:iul. 70 I ct seq .. p. 345 ct \Cq.

(8)

C.

Deductibility of the remuneration paid to PPF holder

6.

100% of all interest paid on the PPF will, in principle, be tax deductible in
accordance with article 45 (I) LITL, unless article 45 (2) LITL or article 166 (5)
LITL is applicable.

D.

Payment of remuneration free of Luxembourg dividend

withholding tax

7.

Article 146 (I) 3 LITL provides for the application of a withholding tax upon
payment of interest arising from participating bonds or other similar securities.
Interest payment may be subject to a 15 % dividend withholding tax on this ground
if the following conditions apply:

The loan is structured in the form of a bond or other similar security; and

Aside from the fixed interest, a supplementary interest varying according to

the amount of distributed profits is paid, unless the supplementary interest is
linked to a corresponding decrease in the fixed interest.

8.

On the contrary, interest payments related to PPF are not subject to a specific
dividend withholding tax.

9.

For the PPF described, the debt instrument is structured as a participating loan (and
not as a profit participating bond), and the participating interest does not depend on
distributable profit. Therefore, interest on the PPF will not be subject to any
dividend withholding tax.

lO.

Based on the above analysis, no dividend withholding tax on investment income

will be due on interest paid under the PPF (neither on the grounds of article 146 (1)
3 LITL nor of article 146 (1) 2 LITL).

(9)

LE GOUVER NEMENT
DU GRAND-DUCHE DE LUX EM BOURG
Administration des contributions dlrectes

Bureau d'imposition
Societes 6

For the attention of Catherine Dupont

PricewaterhouseCoopers
400, route d'Esch
B.P. 1443
L - 1014 Luxembourg

Companies involved:
Shire Holding Europe N2 S.a r.1.- 2008/24/17428
Shire Holdings Ireland No2 Ltd, Luxembourg branch - 2008 32 00163

16 July 2010

Dear Madam.

Further to your letter dated 16 July 2010 and referenced CDT/SELL/NLKL/Q2710030M-GAHO

relating to the transactions that the group Shire Pie would like to conduct, I find the contents of
said letter to be in compliance with current tax legislation and administrative practice.

It is understood that my above confirmation may only be used within the framework of the
transactions contemplated by the above-mentioned letter and that the principles described in
your letter shall not apply ipso facto to other situations.

'

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