Apple Inc. v. Samsung Electronics Co. Ltd. et al

Filing 1345

Unredacted Oppositions to Apple's Motions in Limine (Dkt. Nos. 1208, 1209) by Samsung Electronics America, Inc.(a New York corporation), Samsung Electronics Co. Ltd., Samsung Telecommunications America, LLC(a Delaware limited liability company) re 1256 Order on Administrative Motion to File Under Seal, (Attachments: # 1 Exhibit A to the D'Amato Declaration, # 2 Exhibit B to the D'Amato Declaration, # 3 Exhibit C to the D'Amato Declaration, # 4 Exhibit G to the D'Amato Declaration, # 5 Exhibit H to the D'Amato Declaration, # 6 Exhibit I to the D'Amato Declaration, # 7 Exhibit J to the D'Amato Declaration)(Maroulis, Victoria) (Filed on 7/25/2012) Modified text on 7/26/2012 (dhm, COURT STAFF).

D'AMATO DECLARATION
EXHIBIT I
FILED UNDER SEAL

ADVANCE PRICING AGREEMENT
Between
SAMSUNG ELECTRONICS AMERICA, INC.
and
THE INTERNAL REVENUE SERVICE

m

EXHIBIT
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ADVANCE PRICING AGREEMENT
Between
SAMSUNG ELECTRONICS AMERICA, INC.
and
THE INTERNAL REVENUE SERVICE

PARTIES
The Parties to this Advance Pricing Agreement ("APA") are the Internal Revenue Service
("IRS") and Samsung Electronics America, Inc. ("SEA"), BIN 13-2951153.
RE CITALS
SEA is the common parent of an affiliated group filing U.S. consolidated tax returns
(collectively, "Taxpayer"). SEA's principal place of business is 105 Challenger Road,
Ridgefield Park, NJ 07660. SEA is a wholly-owned U.S. subsidiary of Samsung Electronics Co.,
Ltd. ("SEC"), a Korean corporation. Samsung Telecommunications America, L.P., EIN 941672743, was a Delaware limited partnership that was: (i) indirectly wholly owned by SEA, (ii)
treated as a corporation for U.S. federal income tax purposes, and (iii) included in SEA's U.S.
consolidated tax return from January 1, 2004 through June 30, 2004. Samsung
Telecommunications America, L.P. elected to be treated as a disregarded entity on July 1, 2004
and its financial results flowed into SEA's U.S. tax return from July 1, 2004 through December
30, 2006. On December 31, 2006, Samsung Telecommunications America, L.P. was: (i)
converted to a limited liability company that is a disregarded entity for U.S. federal income tax
purposes; (ii) became directly owned by SEA; and (iii) was renamed Samsung
Telecommunications America, LLC. Samsung Telecommunications America, L.P. and Samsung
Telecommunications America, LLC, EIN 65-0304041, are both referred to as "STA" throughout
this APA. STA's principal place of business is 1301 E. Lookout Drive, Richardson, TX 75082.
STA (i) purchases finished telecommunications and related products (most of which are
wireless phones) from SEC for distribution in the U.S.; and (ii) performs research and
development ("R&D") for SEC. SEC develops, designs, manufactures, markets and sells, inter
alia, the finished telecommunications and related products.

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This APA contains the Parties' agreement on the best method for determining arm'slength prices of the Covered Transactions under I.R.C. section 482, the Treasury Regulations
thereunder, and any applicable tax treaties.
AGREEMENT
The Parties agree as follows:
1.
Covered Transactions. This APA applies to the Covered Transactions, as defined in
Appendix A.
2.
Transfer Pricing Method. Appendix A sets forth the Transfer Pricing Method (TPM) for
the Covered Transactions.
3.
Term. This APA applies to Taxpayer's taxable years ending December 31, 2004 through
December 31, 2009 (APA Term).
4.

Operation.

a.
Revenue Procedure 2006-9 governs the interpretation, legal effect, and
administration of this APA.
b.
Nonfactual oral and written representations, within the meaning of sections 10,04
and 10.05 of Revenue Procedure 2006-9 (including any proposals to use particular TPMs), made
in conjunction with the APA Request constitute statements made in compromise negotiations
within the meaning of Rule 408 of the Federal Rules of Evidence.
5.

Compliance.

a.
Taxpayer must report its taxable income in an amount that is consistent with
Appendix A and all other requirements of this APA on its timely filed U.S. Return. However, if
Taxpayer's timely filed U.S. Return for any taxable year covered by this APA (APA Year) is
filed prior to, or no later than 60 days after, the effective date of this APA, then Taxpayer must
report its taxable income for that APA Year in an amount that is consistent with Appendix A and
all other requirements of this APA either on the original U.S. Return or on an amended U.S.
Return filed no later than 120 days after the effective date of this APA, or through such other
means as may be specified herein.
b.
This APA addresses the arm's-length nature of prices charged or received in the
aggregate between Taxpayer and Foreign Participant with respect to the Covered Transactions.
Except as explicitly provided, this APA does not address and does not bind the IRS with respect
to prices charged or received, or the relative amounts of income or loss realized, by particular
legal entities that are members of U.S. Group or that are members of Foreign Group.

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c.
For each APA Year, if Taxpayer complies with the terms and conditions of this
APA, then the IRS will not make or propose any allocation or adjustment under I.R.C. section
482 to the amounts charged in the aggregate between Taxpayer and Foreign Participant with
respect to the Covered Transactions.
d.
IRS may:

If Taxpayer does not comply with the terms and conditions of this APA, then the

i.

enforce the terms and conditions of this APA and make or propose
allocations or adjustments under I.R.C. section 482 consistent with this
APA;

ii

cancel or revoke this APA under section 11.06 of Revenue Procedure
2006-9; or

iii.

revise this APA, if the Parties agree.

e.
Taxpayer must file one Annual Report (an original and four copies) for all APA
Years by December 15, 2010 in accordance with Appendix C and section 11.01 of Revenue
Procedure 2006-9. (If any date falls on a weekend or holiday, the Annual Report shall be due on
the next date that is not a weekend or holiday.) The IRS may request additional information
reasonably necessary to clarify or complete, the Annual Report. Taxpayer will provide such
requested information within 30 days. Additional time may be allowed for good cause.
f.
The IRS will determine whether Taxpayer has complied with this APA based on
Taxpayer's U.S. Returns, Financial Statements, and other APA Records, for the APA Term and
any other year necessary to verify compliance. For Taxpayer to comply with this APA, an
independent certified public accountant must render an opinion that Taxpayer's Financial
Statements present fairly, in all material respects, Taxpayer's financial position under U.S.
GAAP.
g.
In accordance with section 11.04 of Revenue Procedure 2006-9, Taxpayer will (1)
maintain its APA Records, and (2) make them available to the IRS in connection with an
examination jmder section 11.03. Compliance with this subparagraph constitutes compliance
with the record-maintenance provisions of I.R.C. sections 6038A and 6038C for the Covered
Transactions for any taxable year during the APA Term.
h.
The True Taxable Income within the meaning of Treasury Regulations sections
1.482-1(a)(1) and (i)(9) of a member of an affiliated group filing a U.S. consolidated return will
be determined under the I.R.C. section 1502 Treasury Regulations.
6.
Critical Assumptions. This APA's critical assumptions, within the meaning of Revenue
Procedure 2006-9, section 4.05, appear in Appendix B. If any critical assumption has not been
met, then Revenue Procedure 2006-9, section 11.06, governs. .

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I.
Disclosure. This APA, and any background information related to this APA or the APA
Request, are: (1) considered "return information" under I.R.C. section 6103(b)(2)(C); and (2) not
subject to public inspection as a "written determination" under I.R.C. section 6110(b)(1).
Section 521(b) of Pub. L. 106-170 provides that the Secretary of the Treasury must prepare a
report for public disclosure that includes certain specifically designated information concerning
all APAs, including this APA, in a form that does not reveal taxpayers' identities, trade secrets,
and proprietary or confidential business or financial information.
8.
Disputes. If a dispute arises concerning the interpretation of this APA, the Parties will
seek a resolution by the IRS Associate Chief Counsel (International) to the extent reasonably
practicable, before seeking alternative remedies.
9.
Materiality. In this APA the terms "material" and "materially" will be interpreted
consistently with the definition of "material facts" in Revenue Procedure 2006-9, section
II.06(4).
10.
Section Captions. This APA's section captions, which appear in italics, are for
convenience and reference only. The captions do not affect in any way the interpretation or
application of this APA.
11.
Terms and Definitions. Unless otherwise specified, terms in the plural include the
singular and vice versa. Appendix D contains definitions for capitalized terms not elsewhere
defined in this APA.
12.
Entire Agreement and Severability. This APA is the complete statement of the Parties'
agreement. The Parties will sever, delete, or reform any invalid or unenforceable provision in
this APA to approximate the Parties' intent as nearly as possible.
13.
Successor in Interest. This APA binds, and inures to the benefit of, any successor in
interest to Taxpayer.
14.
Notice. Any notices required by this APA or Revenue Procedure 2006-9 must be in
writing. Taxpayer will send notices to the IRS at the address and in the manner set forth in
Revenue Procedure 2006-9, section 4.11. The IRS will send notices to:
Samsung Electronics America, Inc.
Attn: Young Sung Min, Treasurer
105 Challenger Rd.
Ridgefield Park, NJ 07660
[phone]
15.
Effective Date and Counterparts. This APA is effective starting on the date, or later date
of the dates, upon which all Parties execute this APA. The Parties may execute this APA in
counterparts, with each counterpart constituting an original.
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WITNESS,
The Parties have executed this APA on the dates below.
SAMSUNG ELECTRONICS AMERICA, INC.
By:

Date:

fijM

?

.20»/

Young Sung Mm
Treasurer

SAMSUNG 'TELECOMMUNICATIONS AMERICA, LLC
Date:

By-

Mw- 3

20

Joseph (Joon-Kyo) Cheong
Chief Financial Officer

Date: J j / i i
Craig*\. Sharon
Director, Advance Pricing Agreement Program

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OlS@OMC¥ë|STA(^OD 20091103162110 . . . .
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APPENDIX A
COVERED TRANSACTIONS AND TRANSFER PRICING METHOD (TPM)

1.

Covered Transactions.

This APA covers the following:
A. STA's purchase of tangible goods from SEC for distribution in the U.S. ("Distribution");
and
B. STA's performance of Research and Development for SEC ("R&D Services").
STA's tangible goods purchased from SEC under l.A above are products purchased by STA
from SEC, with title passing from SEC to STA, regardless of whether the products are physically
manufactured in Korea. The APA does not cover STA's purchases of tangible goods from
SEC's manufacturing affiliates in China.
2.

TPM.
A.

Distribution

For the APA Years ending December 31, 2004 through 2007, the Tested Party is STA. The
TPM is the comparable profits method (CPM). The profit level indicator (PLI) is a Berry Ratio.
The Tested Party's Berry Ratio is defined as follows for any APA Year: the Tested Party's gross
profit divided by its operating expenses (as those terms are defined in Treasury Regulations
sections 1.482-5(d)(2) and (3)) for that APA Year. The IRS will not make any transfer pricing
adjustments on the Tested Party's actual results from Distribution for the APA Years ending
December 31, 2004 through December 31, 2007.
For the APA Years ending December 31, 2008 and 2009, the Tested Party is STA. The TPM is
the CPM. The PLIs are a Berry ratio and an operating margin. The Tested Party's Operating
Margin is defined as the sum of the Tested Party's operating profit from Distribution for the
APA Years ending December 31, 2008 and December 31, 2009, divided by the sum of the
Tested Party's sales revenue (as those terms are defined in Treasury Regulations section 1.4825(d)(1) and (4)) relating to Distribution for the APA Years ending December 31, 2008 and
December 31, 2009. The Tested Party's Two-Year Berry Ratio is defined as the sum of the
Tested Party's gross profit from the Distribution for the APA Years ending December 31, 2008
and December 31, 2009, divided by the Tested Party's operating expenses (as those terms are
defined in Treasury Regulations sections 1.482-5(d)(2) and (3)) for the APA Years ending
December 31, 2008 and December 31, 2009. The Arm's Length Range is the Berry Ratio range
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which falls within an Operating Margin range of 0.6% and 2.5% for the APA Years ending
December 31, 2008 and December 31,2009.
B.

R&D Services

The Tested Party is STA. The TPM is the CPM. The PLI is a Cost Plus Markup method. The
Arm's Length Cost Plus Markup is 5%. The Tested Party's Six-Year Weighted Average Cost
Plus Markup is defined as follows: the sum of the Tested Party's operating profit (as defined in
Treasury Regulations section 1.482-5(d)(4)) from the R&D Services for the APA Years ending
December 31, 2004 through December 3.1, 2009 divided by the sum of the Tested Party's total
costs relating to the R&D Services for the APA Years ending December 31, 2004 through
December 31, 2009. Total costs are: (i) cost of goods sold (within the meaning of Treasury
Regulations section 1.482-5(d)(2)) plus (ii) operating expenses (as defined in Treasury
Regulations section 1.482-5(d)(3)).
3.

Application of TPM.
A.

Distribution

There will be no adjustment for APA Years ending December 31,2004 through December 31,
2007 relating to Distribution.
At the end of the APA Term, if the results of Taxpayer's actual Distribution transactions for the
APA Years ending December 31, 2008 and December 31, 2009 produce a Two-Year Berry Ratio
for the Tested Party within the Arm's Length Range, then the amounts reported on Taxpayer's
U.S. Return must clearly reflect such results.
At the end of the APA Term, if the results of Taxpayer's actual Distribution transactions for the
APA Years ending December 31,2008 and December 31,2009 produce a Two-Year Berry R.atio
for the Tested Party outside of the Arm's Length Range, then amounts reported on Taxpayer's
U.S. Return for the APA Year ending December 31,2009 must clearly reflect an adjustment that
brings the Tested Party's Two-Year Berry Ratio to the nearest edge of the Arm's Length Range.
For this purpose, the Tested Party's Two-Year Berry Ratio will be determined from the Tested
Party's income statement relating to Distribution that is segmented as follows: for the APA Year
ending December 31, 2008, the Tested Party's revenue, cost of goods sold and selling, general
and administrative costs relating to Distribution will be reduced by the percentage of the Tested
Party's purchases from SEC's manufacturing affiliates in China over the Tested Party's total
purchases in that year.
B.

R&D Services

At the end of the APA Term, if the results of Taxpayer's actual transactions produce a Six-Year
Weighted Average Cost Plus Markup for the Tested Party equal to the Arm's Length Cost Plus
Markup, then the amounts reported on Taxpayer's U.S. Return must clearly reflect such results.

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At the end of the APA Term, if the results of Taxpayer's actual transactions produce a Six-Year
Weighted Average Cost Plus Markup for the Tested Party not equal to the Arm's Length Cost
Plus Markup, then amounts reported on Taxpayer's U.S. Return for the APA Year ending
December 31,2009 must clearly reflect an adjustment that brings the Tested Party's Six-Year
Weighted Average Cost Plus Markup equal to the Arm's Length Cost Plus Markup..
For purposes of this Appendix A, the "results of Taxpayer's actual transactions" means the
results reflected in Taxpayer's and Tested Party's books and records as computed under U.S.
GAAP, with the following adjustments:
(a) The fair value of stock-based compensation as disclosed in the Tested Party's audited
financial statements shall be treated as an operating expense; and
(b) To the extent that the results in any prior APA Year are relevant (for example, to compute a
multi-year average), such results shall be adjusted to reflect the amount of any adjustment made
for that prior APA Year under this Appendix A.
4.

APA Revenue Procedure Treatment

If Taxpayer makes a primary adjustment under the terms of this Appendix A, Taxpayer may
elect APA Revenue Procedure Treatment in accordance with section 11.02(3) of Revenue
Procedure 2006-9,

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APPENDIX A
CRITICAL ASSUMPTIONS

This APA's critical assumptions are:
1.
The business activities, functions performed, risks assumed, assets employed, and
financial and tax accounting methods and classifications of Taxpayer in relation to the Covered
Transactions will remain materially the same as described or used in Taxpayer's APA Request.
A mere change in business results will not be a material change.
2.
Taxpayer has filed a request for change in accounting methods on August 27,
2008 with the IRS. Taxpayer has represented that the request only impacts tax accounting. The
Parties agree that to the extent that this change in accounting method does not impact Taxpayer's
Financial Statements during the APA Terms, any change in method of accounting pursuant to the
August 27, 2008 request will not be considered a breach of the terms of this APA for purposes of
Taxpayer's compliance with the APA, unless a change in accounting method results in a change
in the Two-Year Berry Ratio or the Six-Year Weighted Average Cost Plus Markup for the
Tested Party from those computed before the change in accounting method.

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APPENDIX C
APA RECORDS AND ANNUAL REPORT

APA RECORDS
The APA Records will consist of:
1.

All documents listed below for inclusion in the Annual Report, as well as all documents,
notes, work papers, records, or other writings that support the information provided in
such documents.

ANNUAL REPORT
The Annual Report will include two copies of a properly completed APA Annual Report
Summary in the form of Appendix E to this APA, one copy of the form bound with, and one
copy bound separately from, the rest of the Annual Report. In addition, the Annual Report will
include a table of contents and the information and exhibits identified below, organized as
follows.
1.

Statements that fully identify, describe, analyze, and explain:

a.
All material differences between the U.S. Group's business operations (including
functions, risks assumed, markets, contractual terms, economic conditions, property, services,
and assets employed) during the APA Year from the business operations described in the APA
Request. If there have been no material differences, the Annual Report will include a statement
to that effect."
b.
All material differences between the U.S. Group's accounting methods and
classifications, and methods of estimation used during the APA Year, from those described or
used in ttie APA Request. If any such change was made to conform to changes in U.S. GAAP
(or other relevant accounting standards), Taxpayer will specifically identify such change. If
there has been no material change in accounting methods and classifications or methods of
estimation, the Annual Report will include a statement to that effect.
c.

Any change to the Taxpayer notice information in section 14 of this APA.

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d.
Any failure to meet any critical assumption. If there has been no failure, the
Annual Report will include a statement to that effect.
e.
Any change to any entity classification for federal income tax purposes (including
any change that causes an entity to be disregarded for federal income tax purposes) of any
Worldwide Group member that is a party to the Covered Transactions or is otherwise relevant to
the TPM.
f.
The amount, reason for, and financial analysis of any compensating adjustments
under paragraph 4 of Appendix A and Revenue Procedure 2006-9, section 11.02(3), for the APA
Year, including but not limited to:
i.

the amounts paid or received by each affected entity;

ii.

the character (such as capital, ordinary, income, expense) and country
source of the funds transferred, and the specific affected line item(s) of
any affected U.S. Return; and

Hi.

the date(s) and means by which the payments are or will be made.

g.
The amounts, description, reason for, and financial analysis of any book-tax
difference relevant to the TPM for the APA Year, as reflected on Schedule M-l or Schedule M-3
of the U.S. Return for the APA Year.
2.
The Financial Statements, and any necessary account detail to show compliance with the
TPM, with a copy of the independent certified public accountant's opinion required by paragraph
5(f) of this AP A.
3.
A financial analysis that reflects Taxpayer's TPM calculations for the APA Year. The
calculations must reconcile with and reference the Financial Statements in sufficient account
detail to allow the 1RS to determine whether Taxpayer has complied with the TPM.
4.
An organizational chart for the Worldwide Group, revised annually to reflect all
ownership onstructural changes of entities that are parties to thé Covered Transactions or are
otherwise relevant to the TPM.
5.

A copy of the APA.

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APPENDIX D
DEFINITIONS

The following definitions control for all purposes of this APA. The definitions appear
alphabetically below:

Term

Definition

Annual Report

A report within the meaning of Revenue Procedure 2006-9, section
11.01.

APA

This Advance Pricing Agreement, which is an "advance pricing
agreement" within the meaning of Revenue Procedure 2006-9, section
2.04.

APA Records

The records specified in Appendix C.

APA Request

Taxpayer's request for this APA dated February 1, 2005, including
any amendments or supplemental or additional information thereto.

Covered Transactions

This term is defined in Appendix A.

Financial Statements

Financial statements prepared in accordance with U.S. GAAP and
stated in U.S. dollars.

Foreign Group

Worldwide Group members that are not U.S. persons.

Foreign Participant

Samsung Electronics Co., Ltd.

I.R.C.

The Internal Revenue Code of 1986, 26 U.S.C., as amended.

Pub. L. 106-170

The Ticket to Work and Work Incentives Improvement Act of 1999.

Revenue Procedure
2006-9

Rev. Proc. 2006-9, 2006-2 I.R.B. 278.

Transfer Pricing
Method (TPM)

A transfer pricing method within the meaning of Treasury Regulations
section 1.482-l(b) and Revenue Procedure 2006-9, section 2.04.

U.S. GAAP

U.S. generally-accepted accounting principles.

U.S. Group

Worldwide Group members that are U.S. persons.
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Term

Definition

U.S. Return

For each taxable year, the "returns with respect to income taxes under
subtitle A" that Taxpayer must "make" in accordance with I.R.C.
section 6012.

Worldwide Group

Taxpayer and all organizations, trades, businesses, entities, or
branches (whether or not incorporated, organized in the United States,
or affiliated) owned or controlled directly or indirectly by the same
interests.

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APPENDIX A
APA ANNUAL REPORT SUMMARY FORM

The APA Annual Report Summary on the next page is a required APA Record. The
APA Team Leader has supplied some of the information requested on the form. Taxpayer is to
supply the remaining information requested by the form and submit the form as part of its
Annual Report.

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APA Annual Report

Department of the Treasury—Internal Revenue Service

SUMMARY

Office of Associate Chief Counsel (International)

Team Leader: Nancy Kim

Advance Pricing Agreement Program

Economist: Russell Kwiat

APA no. 110262-05

Intl Examiner: Jessica Weiss
CA Analyst: Robert Cabell
APA Information

Taxpayer Name: Samsung Electronics, America, Inc.
Taxpayer EIN: 13-2951153

NAICS: 423690

APA Term: Taxable years ending 12/31/04 to 12/31/09
Original APA [X] Renewal APA [ ]
Annual Report due dates:
For all APA Years, on December 15,2010.
Principal foreign country involved in covered transactions: Korea
Type of APA: [ ] unilateral [X] bilateral with Korea
Tested party is [X ] US [ ] foreign [ ] both
Approximate dollar volume of covered transactions (on an annual basis) involving tangible goods and services: .
[ ]N/A [ ) <$50 million [ ] $50-100 million [ ] $100-250 million [ ] $250-500 million [X] >$500 million
APA tests on (check all that apply):
[ ] annual basis [X] multi-year basis [X ] term basis
APA provides (check all that apply) a:
[X] range [X] point [ ] floor only

ceiling only [ ] other_

APA provides for adjustment (check all that apply) to:
[X] nearest edge [ ] median [X] other point
APA Annual Report
Information

APA date executed:

200_

This APA Annual Report Summary is for APA Year(s) ending in 200

_, 200

and was filed on

(to be completed

Check here [ ] if Annual Report was filed after original due date but in accordance with extension.

by the Taxpayer)

Has this APA been amended or changed? [ ] yes [ ] no

Effective Date:

Has Taxpayer complied with all APA terms and conditions? [ ] yes [ ] no
Were all the critical assumptions met? [ ] yes [ ] no
Has a Primary Compensating Adjustment been made in any APA Year covered by this Annual Report?
[ ] yes [ j no
If yes, which year(s): 200
Have any necessary Secondary Compensating Adjustments been made? [ ] yes [ ] no
Did Taxpayer elect APA Revenue Procedure treatment? [ ] yes [ ] no
Any change to the entity classification of a party to the APA? [ ] yes [ ]no
Taxpayer notice information contained in the APA remains unchanged? [ ]yes [ ]no
Taxpayer's current US principal place of business: (City, State)
APA Annual Report
Checklist of
Key Contents

Financial analysis reflecting TPM calculations

[ ] yes [ ] no

Financial statements showing compliance with TPM(s)

[ ] yes [ ] no

Schedule M-l or M-3 book-tax differences

[ ] yes [ ]no

(to be completed

Current organizational chart of relevant portion of world-wide group

[ jyes [ ]no

by the Taxpayer)

Attach copy of APA

[ ] yes [ ] no

Other APA records and documents included:
[The information required in the following section should be tailored to the particular case]
[ ] yes [ ] no
[ îyes [ 1 no
[ ] yes [ ] no
t

J yes

l J no

[ ]yes [ ] no
Authorized Representative

Phone Number

Affiliation and Address

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