Hear the recent developments within the indirect tax arena, focusing on employment, sales and use and property taxes.

1. 22nd Annual Health Sciences
Tax Conference
Above the line state and local considerations:
why should you care?
December 4, 2012

2. Disclaimer
► Any US tax advice contained herein was not intended or
written to be used, and cannot be used, for the purpose of
avoiding penalties that may be imposed under the Internal
Revenue Code or applicable state or local tax law
provisions.
Page 2 Above the line state and local considerations: why should you care?

3. Disclaimer
Ernst & Young refers to the global organization of member firms of Ernst & Young Global
Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving
member firm of Ernst & Young Global Limited operating in the US. For more information
about our organization, please visit www.ey.com.
This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of this
document may be reproduced, transmitted or otherwise distributed in any form or by any
means, electronic or mechanical, including by photocopying, facsimile transmission,
recording, rekeying, or using any information storage and retrieval system, without written
permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this
form or any of the material herein is prohibited and is in violation of US and international
law. Ernst & Young LLP expressly disclaims any liability in connection with use of this
presentation or its contents by any third party.
Views expressed in this presentation are not necessarily those of Ernst & Young LLP.
Page 3 Above the line state and local considerations: why should you care?

4. Presenters
► Steve Rauch ► Michele Raber
Global Tax – Indirect Tax and Ernst & Young LLP
Incentives Iselin, NJ
Pfizer, Inc. +1 732 516 4786
Steve.Rauch@pfizer.com michele.raber@ey.com
► Ed Grimes ► Rebecca Truelove
Director of Tax Ernst & Young LLP
Cordis Corporation New York, NY
EGrimes1@its.jnj.com +1 212 773 8028
rebecca.truelove@ey.com
► Jennie DeVincenzo
Ernst & Young LLP
Iselin, NJ
+1 732 516 4572
jennie.devincenzo@ey.com
Page 4 Above the line state and local considerations: why should you care?

5. Today’s agenda
► Overview
► Employment tax
► Property tax
► Sales and use tax
► Credits and incentives
Page 5 Above the line state and local considerations: why should you care?

6. Overview

7. Ernst & Young LLP/COST FY 2011 50-state
business tax study
► Ernst & Young LLP’s 10th annual study of total state and
local business taxes, produced in conjunction with the
Council on State Taxation (COST):
► Examines business tax trends and provides estimates of the level
of business taxes in each state, including indirect taxes and
local taxes
► Provides insights to frame state business tax reform discussions
► Provides the only comprehensive estimate of total state and local
taxes paid by business
Page 7 Above the line state and local considerations: why should you care?

8. The big picture
Composition of total state and local business taxes, FY 2011
Taxes on business property
10.0% Sales tax on business inputs
5.6%
Excise, utility and insurance taxes
6.4% 38.0%
Corporate income tax
7.2%
Unemployment insurance tax
12.6% Individual income tax on business
income
Business license and other
20.1%
Note: figures may not sum due to rounding.
Source: Ernst & Young LLP estimates based on data from the
U.S. Census Bureau, state and local government finances.
Page 8 Above the line state and local considerations: why should you care?

9. How much state and local tax did business
pay in FY 2011?
Total state and local business taxes, FY 2011
2011 One-
FY 2010 FY 2011 % total year
Business tax (US$b) (US$b) taxes change
Business property taxes $248.6 $244.9 38.0% -1.5%
Sales taxes on business inputs 123.3 129.7 20.1 5.2
Corporate income tax 42.7 46.3 7.2 8.5
Unemployment insurance 32.4 41.2 6.4 27.1
Business and corporate license 37.0 37.3 5.8 0.9
Individual income tax on passthru 33.0 36.3 5.6 10.0
Excise taxes 30.5 35.0 5.4 14.9
Public utility taxes 28.9 28.8 4.5 -0.3
Insurance premiums taxes 16.6 17.2 2.7 3.6
Severance taxes 11.3 14.8 2.3 30.9
Total business taxes $616.0 $643.9 100.0% 4.5%
Note: Figures may not sum due to rounding.
Page 9 Above the line state and local considerations: why should you care?

10. State unemployment insurance (UI) trust
fund debts still significant
► Many states still face enormous UI UI debt as
trust fund debts. of June % of FY11
► 10 states account for 80% of the 2012 business
debts; California accounts for 30%. State (US$b) tax
► North Carolina and Indiana have California $8.8 10%
the largest debts relative to the New York 2.8 4
size of their current business taxes.
Pennsylvania 2.5 10
► States are responding by
increasing UI contribution rates
North Carolina 2.5 19
and taxable wage bases. Ohio 1.8 9
► If these debts were paid off in the Indiana 1.7 17
next year through UI or other Illinois 1.1 4
business tax increases, total New Jersey 1.0 5
business taxes would rise by more Kentucky 1.0 14
than 10% in CA, PA, NC, IN
Wisconsin 0.9 9
and KY.
Other states 5.1 1
Total $29.3 5%
Note: Figures may not sum due to rounding.
Page 10 Above the line state and local considerations: why should you care?

11. 2012 state budget surpluses
States with projected 2012 unobligated balances
MT ND
VT
OR
MN
ID NY
SD WI
MI
WYWY
RI
IA NJ
NE
OH
IN DE
DC
CO WV
VA
KY
TN
AZ OK
NM SC
MS AL
AK
TX
HI
National Council of State Legislatures,
Morgan Stanley Smith Barney, Ernst & Young LLP
Page 11 Above the line state and local considerations: why should you care?

12. What’s trending in 2012?
► Legislative and administrative trends in 2012:
► Affiliate sales/use tax nexus
► Credits for hiring unemployed veterans
► Creating, extending, expanding credits for job creation, investment
and research and development (R&D)
► Increased focus on taxing nonresidents
► Increased discussions around tax reform
Page 12 Above the line state and local considerations: why should you care?

13. Employment tax

14. Form W-2 reporting of health benefits
► Effective in tax year 2012, employers are required to report the value of
employer-sponsored health insurance on Form W-2.
► Box 12, code DD is used for this purpose.
► The requirement to report employer-sponsored group health plan coverage
costs is informational only.
► Costs reported are not included in employees’ taxable income (for now).
► Until the issuance of further guidance, an employer is not subject to the
reporting requirement for a calendar year if the employer was required to file
fewer than 250 Forms W-2 for the preceding calendar year.
Page 14 Above the line state and local considerations: why should you care?

15. Form W-2 reporting of health benefits
► An employer may apply any reasonable method of reporting the cost of
coverage for an employee who terminated employment during the calendar
year, so long as the method is used consistently for all employees covered
under the plan.
► If an individual transfers to a new successor employer, generally both the
predecessor and successor employers must report the employer-sponsored
group health plan coverage that each provided, unless the successor reports
using the alternate procedure (Revenue Procedure 2004-53).
► Only the cost of “applicable employer-sponsored coverage” is required to be
reported.
► Coverage that is includable in income is still reportable as employer-
sponsored coverage, which would include, for example, coverage
provided by an employer to an employee’s non-dependent partner and
the partner’s children.
Page 15 Above the line state and local considerations: why should you care?

16. Form W-2 reporting of health benefits
► These are not included in the reporting requirement:
► Any Archer medical savings account (MSA) or health savings account (HSA)
► Long-term care
► Accident or disability income coverage
► Supplemental liability insurance
► Automobile liability insurance
► Workers’ compensation
► Automobile medical coverage
► Credit insurance
► Coverage for only a specified disease or hospital indemnity
► Any coverage under a multi-employer plan
► Any coverage under a Health Reimbursement Arrangement (HRA)
► Any self-insured group health plan that is not subject to any federal continuation coverage
requirements (the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA))
► Employee’s pre-tax contributions to a flexible spending arrangement
► Employer “flex credits” in a flexible spending account (FSA) are reportable; the exclusion
applies only to employee pre-tax deferrals
Page 16 Above the line state and local considerations: why should you care?

17. Form W-2 reporting of health benefits
► There are three methods for calculating the reportable
cost:
► The COBRA-applicable premium method
► The premium-charged method
► A modified COBRA premium method
► An employer that subsidizes the cost of coverage or that determines
the cost of coverage for a year by applying the cost of coverage in a
prior year may calculate the reportable cost using this method.
► A special rule applies for employers that charge
employees a composite rate (the same premium for
different types of coverage under a plan)
Page 17 Above the line state and local considerations: why should you care?

18. Changes to note for 2013

19. Social Security tax to increase in 2013
► The employee withholding rate of 4.2% is set to return to
6.2% in 2013.
► The employer rate will remain at 6.2%.
► The Social Security Administration estimates that the
wage base will increase from US$110,100 to
US$113,700.
► The estimated annual maximum employee tax will increase by
US$2,425.20 (US$4,624.20 vs US$7,049.40) .
► The federal income tax rates are also set to automatically
increase in 2013.
Page 19 Above the line state and local considerations: why should you care?

20. Medicare tax to increase in 2013
► Effective in 2013, employers are required to withhold an
additional Medicare tax of 0.9% on wages in excess of
US$200,000 for all employees, regardless of marital status.
► There is no matching employer contribution, and employees are required to
pay the additional tax based on a threshold of income and their filing status.
► Taxpayers with combined income in excess of US$250,000 pay the
remaining Medicare tax on their federal Form 1040.
► The additional Medicare tax is not separately reported on Form W-2.
► Form 941 will include a separate line for additional Medicare tax.
► Also effective in 2013, investment income is subject to
Medicare tax.
► A number of employees may need to revise their Form W-4 in 2013 to take
into account this additional tax.
Page 20 Above the line state and local considerations: why should you care?

21. Limit on flexible spending accounts
► Effective in 2013, to be qualified under a cafeteria plan, an
employee’s health flexible spending account contributions
cannot exceed US$2,500 per year (with the annual
amount indexed each year thereafter for inflation).
Page 21 Above the line state and local considerations: why should you care?

22. Expiring provisions — time is running out

23. Extender legislation hopefuls in 2012
Provision Description Expiration date
Undergraduate and graduate- Exclusion of up to US$5,250 December 31, 2012
level education assistance per year
Adoption assistance Effective in 2012, exclude up to December 31, 2012
US$12,170 per year indexed
for inflation
Work Opportunity Tax Credit Other than certain December 31, 2012
(WOTC) veterans groups
Mass transit benefits Renew or reinstate the parity December 31, 2012
between parking and
transit benefits
Expense tax credit for employer A credit of up to US$150,000 for December 31, 2012
child-care assistance acquiring, constructing,
refurbishing or expanding a
child-care facility
Bush-era tax rate reductions The tax rates are set to December 31, 2012
automatically increase in 2013
to 28%, 31%, 36% and 39.6%
(currently 25%, 28%, 33% and
35%, respectively)
Page 23 Above the line state and local considerations: why should you care?

24. Impact of 2013 income tax increases
► If the Bush-era federal income tax rates are allowed
to lapse:
► The federal supplemental withholding rate would increase from
25% to 28%.
► The federal flat-tax rate for supplemental wages in excess of US$1
million would increase from 35% to 39.6%.
► Employer gross-up costs would significantly increase.
► Internal Revenue Service (IRS) liability assessments for failure to
withhold federal income tax would significantly increase.
Page 24 Above the line state and local considerations: why should you care?

25. In the face of uncertainty . . .
► Be certain to make educational reimbursements in 2012
► Payments that fall into 2013 could be fully taxable (because the
US$5,250 would no longer apply).
► Continue to certify WOTC-eligible employees with the
state employment agency
► A retroactive reinstatement to January 1, 2012 is still likely and will
apply only to employees properly certified.
► Continue to monitor developments and expect last-minute
Congressional action
Page 25 Above the line state and local considerations: why should you care?

26. Property tax

27. Property tax issues
► Three major issues impacting property taxes:
► Classification — assets are classified in the most advantageous
category, consistent with state law
► Real vs personal property
► Taxable vs exempt
► Abatements or special treatment
► Verification — assets are in place, in use and correctly
accounted for
► Valuation — assets are valued appropriately (the basis in the
majority of states is fair market value)
Page 27 Above the line state and local considerations: why should you care?

28. Triggering events
► Potential events that could trigger a change in valuation of
fixed assets:
► Mergers and acquisitions (M&A)
► Fixed-asset impairment analysis
► Economic downturns and adverse market conditions
► Facility expansions and new construction
► Loss of use of facility due to natural disaster or human error
► Consolidations and divestitures
► Sale, disposal and transfer of fixed assets
Page 28 Above the line state and local considerations: why should you care?

29. What we are seeing
► Challenges
► Sustained, and in some cases increasing, levels of budget deficits
impacting state and local government responses to adjusting
property values
► Speed of resolution on appeals has slowed down significantly as jurisdictions
trade the potential for multiple-year changes against a current cash loss
► Increased third-party auditor activity
► Effective tool in identifying unreported assets as a way to increase tax revenue
► Overall residential and commercial values have eroded the tax
base, leaving manufacturing, distribution and utility property
carrying a larger percentage of the property-tax burden
► The assessment community is pushing back with greater force and frequency
on appeals, value reductions and waivers on fees, penalties, etc.
Page 29 Above the line state and local considerations: why should you care?

30. What we are seeing
► Opportunities
► Aggressively value assets using alternative techniques and
strategies
► Identify and quantify reduction in values for both taxable real
estate and business personal property:
► Physical depreciation
► Functional obsolescence – technology changes, design of facilities
► Economic obsolescence – external factors
► e.g.: FDA denial of new drug, patent expiration, governmental regulations
► Address fixed-asset issues such as unrecorded disposals,
accretions, reclassifications, etc.
Page 30 Above the line state and local considerations: why should you care?

31. What we are seeing
► Trends
► Embedded software and intangibles:
► Technology has greatly changed the design and functionality of assets
over the last 10 years.
► The role and proportion of embedded software in many manufacturing-
related assets has become more significant over time.
► Intangible assets such as software, R&D, consulting, construction soft
costs and intellectual property are often embedded in the total costs of
an asset.
► Cost-saving benefits from the software/intangible exemption has
become attractive and some companies are actively and aggressively
pursuing these exemptions.
► Applicable for most industries, but particularly in high tech
manufacturing, telecommunications, defense/aerospace, IT,
transportation and automotive industries.
Page 31 Above the line state and local considerations: why should you care?

32. Embedded software and intangibles
exemption opportunity
Summary of the issue
► Courts in California and Texas have held software embedded in an otherwise tangible asset to be non-taxable as an
intangible.
► A majority of the 37 states that tax tangible personal property do not tax intangible assets that may include, but are not limited
to, software.
► Intangible assets are often present on personal property renditions with misclassified assets or unrecorded disposals.
An analysis can be performed to segregate the exempt software bundled into hardware accounts, which leads to a
reduced property tax basis consistent with statutory authority.
► Taxing authorities in jurisdictions that assess property tax generally will accept the filed rendition, provided it reconciles to the
fixed asset list.
► A reduction in value can be achieved by utilizing various proven methods to quantify exempt software.
The identification and quantification of all intangible assets, along with corrected classifications and identification of
unrecorded disposals, can be coordinated with a rendition filing that conforms to the fixed asset list, and will
generally be accepted by the jurisdiction.
Page 32 Above the line state and local considerations: why should you care?

33. Sales and use tax

34. What we are seeing
► Challenges
► Difficulty determining taxability of prescription and non-prescription sales:
► Human or animal use?
► Reimbursed by Medicare/Medicaid?
► Defining wholesale vs retail transactions
► Difficulty determining taxability of medical and prosthetic devices:
► Exemption certificate documentation
► Challenge of issuing proper exempt-use certificate to vendor on purchases
► Challenge of securing proper exempt-use certificate from customer on sales
► Technology:
► Developing and employing appropriate use tax accrual process to address promotional
printing/sales reps items
► Use sales factor by state or some other formula (i.e., sales reps in state/total sales
reps)?
► Which general ledger accounts or vendor purchases to include in calculation?
► Is Direct Pay Permit an option?
► Audit challenges of convincing states that a chosen formula is appropriate?
Page 34 Above the line state and local considerations: why should you care?

35. What we are seeing
► Trends
► States are more aggressively attacking use-tax calculations on
printed promotional items/samples:
► Tennessee is well known for attacking all industries (not just health
care-related) on promotional items/samples distributed within the
state.
► Ever-changing taxability of software and software-related services.
► States (e.g., PA and CO) are flipping their decisions on enforcing
taxability of applications delivered electronically.
► What is electronically delivered? Certain states tax “electronically
delivered” software, but consider “hosted” applications to be a non-
taxable service.
Page 35 Above the line state and local considerations: why should you care?

36. What we are seeing
► Opportunities for pharmaceutical industry:
► State manufacturing exemptions can include:
► Machinery and equipment
► Utilities used in production process (can potentially include utilities
used via heating, ventilation and air conditioning (HVAC))
► Parts, labor and other maintenance services on such
qualified equipment
► Generally includes packaging materials and supplies
► R&D exemption:
► Lab supplies and equipment
► Utilities used in lab
Page 36 Above the line state and local considerations: why should you care?

37. Nexus — state administrative activity
► Alabama
► Rule 810-6-2-.90.01 (effective August 24, 2012) — guidance on when a seller
has substantial nexus with Alabama; includes affiliate relationships
► California
► CA Regs. 1684 (effective August 26, 2012) — expanded sales/use nexus
provisions aimed at remote retailers takes effect September 15, 2012
► Colorado
► PLR-12-002 (May 30, 2012) — out-of-state internet retailer has nexus with
Colorado based on the activities of in-state affiliate
► Hawaii
► LR 2012-10 (July 10, 2012) — out-of-state internet retailer has nexus with
Hawaii due to in-state affiliate’s return policy and loyalty points program
► Pennsylvania
► Sales and Use Tax Bulletin 2011-01 (December 1, 2011) — lists activities that
create nexus
Page 37 Above the line state and local considerations: why should you care?

38. Nexus — proposed federal legislation
► Three pieces of federal legislation on nexus:
► The Main Street Fairness Act (S. 1452/H.R. 2701)
► The Marketplace Equity Act of 2011 (H.R. 3179)
► The Marketplace Fairness Act (S. 1832)
► Each bill would permit states to require remote sellers that
lack physical presence within the state to collect sales or
use tax on taxable transactions with in-state residents.
► The state would be required to adopt some form of sales
and use tax law simplification — either through
streamlined sales tax or some other alternative.
Page 38 Above the line state and local considerations: why should you care?

39. Judicial updates
► Pennsylvania
► The Pennsylvania Supreme Court has held that MRI and PET/CT
Scan systems that were installed pursuant to construction
contracts did not become permanent parts of realty, and were
therefore subject to Pennsylvania sales tax. The decision reverses
two 2009 rulings by the Commonwealth Court, which relied on a
prior Pennsylvania real estate tax decision to conclude that the
systems became realty once they had been “attached” to the
taxpayer’s structure. Northeastern Pennsylvania Imaging Center v.
Commonwealth of Pennsylvania, No. J-100A-2010 (Pa. Sup. Ct.
December 21, 2011).
Page 39 Above the line state and local considerations: why should you care?

40. Judicial updates
► Texas
► In a recent decision, the Texas Court of Appeals for the Third
District held that special surgical instruments used in orthopedic
surgery were exempt from sales and use tax as orthopedic
devices. Zimmer US, Inc. v. Combs, No. 03-11-00178-CV
(February 9, 2012). Similarly situated taxpayers should consider
filing protective refund claims while the case is on appeal to the
Texas Supreme Court.
► The Texas Court of Appeals has held that a private health
insurance carrier, Blue Cross and Blue Shield of Texas, Inc. (Blue
Cross), was entitled to a refund of sales taxes on purchases
related to the administration of federal programs, because the
transactions qualified for the sale-for-resale exemption. Combs v.
Health Care Services Corporation, No. 03-09-00617-CV (Tex.
App. Ct. March 16, 2011).
Page 40 Above the line state and local considerations: why should you care?

41. Credits and incentives: key 2011 survey
findings and recommendations

42. Key 2011 credits and incentives survey
findings
Active in incentives arena
► 38% are active or very active in capturing incentives
► 37% are more active today than they were two years ago
► 88% of companies think they will be as active or more active in pursuit of incentives in the next
24 months
► 80% of companies are not aware of or have not claimed any benefits associated with
sustainability and energy efficiency in the past 24 months
Incentives influencing decisions
► 42% and 26% of companies say business expansion is influenced by the availability of
incentives domestically and internationally, respectively
► 39% of companies said that incentives influence their capital expenditure decisions
► 33% of the C-suite is starting to focus or is more focused on maximizing incentives than in the
past
Incentives compliance management
► 57% of companies are managing their incentives compliance with an Excel spreadsheet and
have no formal compliance management process
► 76% of companies have one or less full-time equivalent (FTE) focused on capturing incentives
and credits
Page 42 Above the line state and local considerations: why should you care?

43. Life sciences industry incentives context
► Increased sales in emerging markets
► There is higher projected growth in emerging markets, while mature markets will
see relative stagnation in growth.
► Patent cliff
► Both the number of drug patents expiring and the amount of sales to be affected
are unprecedented in the industry.
► M&A activity and alliances
► Many large life sciences companies have continued the consolidation trend as they
acquire other companies in order to maintain their R&D pipelines.
► Costs and uncertainties of new product development
► Research and development expenditures and extensive and costly clinical trials
lead to high drug development costs and the potential for losses if products in the
pipeline are not commercialized.
► Government regulations
► On average, pharmaceutical companies have invested eight years and
approximately US$1 billion in order to develop and commercialize new drugs.
Page 43 Above the line state and local considerations: why should you care?

44. How active is your company in taking advantage
of business incentives and tax credits?
0% 10% 20% 30% 40% 50%
Very active, it has a department
or team focused on maximizing
incentives at all levels, and has 4%
a process in place to identify
opportunities
Active 37%
Moderately active 44%
Not active at all, and not
interested or don't think they 10%
apply
Not active, and feel company is
6%
missing opportunities
Credits and Incentives Study (2011) Percent of 52 life science respondents
Page 44 Above the line state and local considerations: why should you care?

45. How many full-time equivalent (FTE) in-house resources do
you have dedicated to business incentives and tax credits?
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Less than one FTE 81%
One to three FTE 13%
More than three to five FTE 4%
More than five FTE 2%
Credits and Incentives Study (2011) Percent of 52 life sciences respondents
Page 45 Above the line state and local considerations: why should you care?

46. In your opinion, what have been/will be the two primary
barriers to securing business incentives and tax credits?
0% 10% 20% 30% 40% 50% 60%
Operations too busy to execute on the requirements 42%
42%
Program requirements too burdensome 27%
31%
Lack of timely information on transactions 23%
21%
Company in loss position, and cannot take advantage of tax credits 40%
48%
Difficult to coordinate within the various company departments 10%
6%
Too much paperwork required 6%
15%
Tracking too difficult 13%
10%
Company does not want to share data publicly on investment plans, 4%
etc. 4%
Company management does not want to participate for business 0%
reasons 2%
Employee privacy 0%
0%
Other, please specify: 10%
4%
Next 24 Months Prior 24 Months
Percent of 52 life sciences respondents
Page 46 Above the line state and local considerations: why should you care?

47. How aware is the C-suite (management) of your company with
respect to the business incentives and tax credit opportunities?
0% 10% 20% 30% 40% 50% 60% 70%
Not aware at all 13%
Somewhat aware 58%
Starting to focus on them more
21%
than in the past
Very aware, and focused on
8%
maximizing
Credits and Incentives Study (2011) Percent of 52 life sciences respondents
Page 47 Above the line state and local considerations: why should you care?

48. How important are business incentives and tax credits
as a cost-reducing tool for your organization?
0% 10% 20% 30% 40%
Extremely important 19%
Important 29%
Neutral 19%
Not that important, but we claim
them where we meet the 31%
requirements
Don't know 2%
Credits and Incentives Study (2011) Percent of 52 life sciences respondents
Page 48 Above the line state and local considerations: why should you care?

49. In your organization, which of the following business decisions are
influenced by incentives and tax credits? Check all that apply.
0% 10% 20% 30% 40% 50% 60%
Business expansion within the
49%
United States
Making capital expenditures 44%
Job creation 42%
Business expansion outside the
35%
United States
Business relocation 16%
Real estate/site selection 14%
Job training 16%
Mergers/acquisitions 23%
Other, please specify: 12%
Credits and Incentives Study (2011) Percent of 52 life sciences respondents
Page 49 Above the line state and local considerations: why should you care?

50. What two primary changes would you like to see in the way
state and local governments negotiate or offer incentives?
0% 10% 20% 30% 40% 50% 60%
More streamlined application
55%
process, i.e., more automation
Less back-end administrative
29%
compliance
Increased ability to monetize tax
incentives, i.e., assignability, 39%
saleability
Greater predictability in
18%
programs
Greater transparency in approval
14%
process and criteria
Centralized point of contact 20%
More timely resources 24%
Electronic signature 4%
Other, please specify: 2%
Credits and Incentives Study (2011) Percent of 52 life sciences respondents
Page 50 Above the line state and local considerations: why should you care?

51. In your opinion, how would you categorize your company’s
growth plans via capital expansion over the next 24 months?
0% 10% 20% 30% 40%
Aggressive growth (more than
2%
20%)
Strong growth (more than 10% to
20%
20%)
Moderate growth (more than 5%
31%
to 10%)
Will remain flat (0 to 5%) 33%
Will shrink 4%
Don't know/Not sure/Refuse to
10%
Answer
Credits and Incentives Study (2011) Percent of 52 life sciences respondents
Page 51 Above the line state and local considerations: why should you care?

52. In the next 24 months, what percent of your capital spend
and/or job creation will occur in the United States versus
abroad?
0% 10% 20% 30% 40% 50% 60%
Greater than 75% within the
49%
United States
Greater than 50% to 75% within
14%
the United States
Greater than 25% to 50% within
16%
the United States
Greater than 5% to 25% within
6%
the United States
0% to 5% within the United
16%
States
Credits and Incentives Study (2011) Percent of 52 life sciences respondents
Page 52 Above the line state and local considerations: why should you care?

53. An integrated company-wide process allows
the opportunity to realize additional benefits
The power of an integrated process
Limitations of decentralization Benefits of an integrated
global process
► Inefficient data collection
► One-off pursuits ► Streamlined/prioritized data collection
► Single department approach ► Opportunity pooling (cross-department)
► Isolated relationships with public ► Established, deep
Common
officials processes relationships/continuous contact
► No leverage of company’s economic Centralization ► Maximized value
impact ► Detailed information – true prioritization
Global teaming
► Value leakage ► Continuous service
Knowledge
► Loss of value between transfer ► Relevant packages – negotiated with
negotiation/realization profile in mind
► Limited information ► Comprehensive/continuous knowledge
► On-demand service transfer
► Irrelevant incentives
► Limited knowledge transfer
Page 53 Above the line state and local considerations: why should you care?

54. Integrated incentives function: guiding
principles
► Executive sponsorship
► Multiple company stakeholders involved
► Established formal communications protocol
► Clearly defined incentives triggers and thresholds
► Consistent incorporation into larger capital acquisition process
► Standardized data collection process and requests
► Identification/mitigation of “risks to benefits” in any jurisdiction
► Functional technology system for incentives identification, evaluation
and maintenance
► Constant monitoring, tracking and reporting of savings
► Coordinated compliance to reduce clawback risk
Page 54 Above the line state and local considerations: why should you care?

55. Integrated incentives function: integrated
stakeholders
► The 8% of our survey respondents who consider incentives a strategic focus are far more likely to
maximize their incentives return on investment. They have defined a multidisciplinary, managed
approach to evaluate and capture cost-savings associated with capital investment from budget
authorization through compliance.
Business
development
Finance/
Tax
treasury
Facilities/
Executive
sponsor(s) Sustainability
real estate
and
project
team
General Operations
counsel
Human Government
resources affairs
Page 55 Above the line state and local considerations: why should you care?

56. Global life sciences incentives triggers
► Research and development
► Pharmaceutical companies continue to make significant investments in
research and development. Because these investments lead to new jobs
and the potential for newly created enterprises, this activity is being
encouraged by governments around the world through incentive
programs.
► Technical hiring
► Because many of the jobs associated with new drug development are
often higher-paying, governments have been targeting them with “high-
skilled” job creation incentives.
► Capital expenditure
► Large capital projects such as new manufacturing facilities or service
facilities that lead to significant hiring are frequently eligible for incentives.
Governments are willing to compete to provide the most cost-effective
location in which to place such investments.
Page 56 Above the line state and local considerations: why should you care?

57. Global incentives trends
► Increased internal scrutiny on business case for investments,
including incentives
► More outbound investments in low-cost or developing countries
► Consolidation and rationalization seen as more routine decisions
► Increased research and development demands
► Higher-quality job creation
► Impact of climate change and sustainability considerations
Page 57 Above the line state and local considerations: why should you care?

58. Global incentives solutions for life sciences
companies
► Measures used by authorities around the globe to influence behaviors within their jurisdictions,
including statutory and discretionary programs for both tax and non-tax benefits, include:
Types Description
Some countries make cash grants available on a negotiated basis
Negotiated grants for approved projects, for example.
Some countries offer tax incentives that provide large deductions
Tax incentives or credits for R&D expenditures. These programs range from a
130% deduction in the UK to a 400% deduction in Singapore.
Patent box regimes allow companies to pay lower taxes and
Patent boxes potentially receive other preferential treatment for locating
intellectual property within the respective country.
The European Union funds 50% of qualifying costs on approved
R&D projects. FP7 has budgeted €6.1 billion for health-related
R&D grants projects. IDA Ireland provides cash grants on a discretionary
basis to investments involving R&D.
Hiring incentives are generally made available for significantly
increasing location headcount as well as for creating jobs that
Hiring incentives require higher-skilled/higher-paid positions. Incentives may be in
the form of wage subsidies or tax relief.
Page 58 Above the line state and local considerations: why should you care?

59. Sample activity categories and incentive
types
Common activities:
Research and Sourcing and Production and
Distribution Delivery
development supply manufacture
► R&D
► A health care company obtained discretionary cash grant, which funded 60% of R&D costs.
► Sourcing and supply
► A life sciences company considering locating a R&D center in UK or Ireland was able to
successfully negotiate a cash grant in Ireland to subsidize R&D costs.
► Production and manufacture
► A manufacturing company considering opening a new manufacturing facility in Malaysia found
that making minor adjustments to business purposes, such as including R&D operations in the
manufacturing facility, would qualify investment for considerable cash subsidies.
► Distribution
► A large company was able to obtain a 10-year income tax exemption when relocating its
distribution center in China.
► Delivery
► A manufacturing operation was able to obtain funding for modal shifts in Europe.
Note: refer to slide 58 for incentive types available in each category above
Page 59 Above the line state and local considerations: why should you care?

60. Sample global incentives
Climate change and
Region Country R&D Location sustainability
Argentina v √
Brazil √ √
Canada √
Americas
Colombia √
Mexico √
US √ √ √
Australia √ √
China √ √
Indonesia √
Asia-Pacific Korea √
Malaysia √
Singapore √ √
Vietnam √
Belgium √
Czech Republic √
France √
Germany √
Hungary √
India √
EMEIA
Ireland √
Poland √
Russia √
South Africa √
Spain √
UK √ √
Page 60 Above the line state and local considerations: why should you care?