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Enron Mail |
FYI.
----- Forwarded by Alan Aronowitz/HOU/ECT on 10/16/2000 03:48 PM ----- Susan Musch@ENRON_DEVELOPMENT 10/16/2000 10:59 AM To: Jane McBride/AP/Enron@ENRON cc: Alan Aronowitz/HOU/ECT@ECT@ENRON, Jan-Erland Bekeng/AP/Enron@Enron, Darren Delage@Enron Subject: Re: ENA - Darren Delage Jane, Attached are 2 series of e-mails regarding how the trades that Darren will be entering into should be structured. Gary agreed (while I was in New York) that because of the Japanese tax concerns, we need for Enron Japan (e.g., Darren) to enter into the trades as principal and then enter into mirror-ish trades with ENA. The one issue that Gary raised when we spoke was that he wants the management reporting of the income from those trades to go to his group. I told him that my understanding is that that should not be a problem. Jan-Erland, please let me know if my understanding is incorrect. Where we are right now with respect to the structuring process is that Jan-Erland is working on the margin (as set forth below in his attached e-mail). Jan-Erland, would you please let us know where we stand with this process? Best regards, Susan Jan-Erland Bekeng@ENRON 10/03/2000 09:21 PM To: Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Darren Delage/AP/Enron@Enron, Jane McBride/AP/Enron@Enron Subject: Re: Japan Entity structuring All We should use the margin or fee a broker would get. Darren and I will investigate. JEB Susan Musch@ENRON_DEVELOPMENT 10/04/2000 11:08 To: Darren Delage/AP/Enron@ENRON cc: Jane McBride@Enron, Jan-Erland Bekeng/AP/Enron@Enron Subject: Re: Japan Entity structuring Darren, I talked with Gary last week and explained that based on the Japanese tax advice that we have received from Baker & McKenzie-Tokyo, we cannot follow the same approach that we followed for the financial traders in the London and Sydney offices. That is, instead of having the trader, as an employee of the local office, provide services for ENA, we need to have back-to-back trades between Enron Japan ("EJ") and Enron North America ("ENA"). Under this scenario, you would be an Enron Japan ("EJ") employee who would enter into the trades for EJ as principal. Then, EJ would enter into mirror trades with ENA. Under this approach, we have to figure out what margins should be retained by EJ. These back-to-back trades would need to be entered into at an arms' length rate. The amount of margin retained by EJ should be based on what risk it retains and the value it generates/costs it incurs in entering into those trades. Do you, Jane or Jan-Erland have any thoughts on what margin should be retained by EJ? Are there any third party comparables we can use to determine the margin? Also, Darren how long do you plan to be in the Tokyo office? Best regards, Susan From: Darren Delage@ENRON on 10/03/2000 06:10 PM ZE9 To: Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Japan Entity structuring Hi Susan, I have not heard anything from Gary regarding structuring of financial trading operation in Tokyo. Do you have any further information relating to this? Sincerely, Darren Susan Musch 09/25/2000 08:43 PM To: John Viverito@Enron, Alan Aronowitz@ECT, Sara Shackleton@ECT, Jane McBride/AP/Enron@Enron cc: Alan Aronowitz@ECT (bcc: Susan Musch/ENRON_DEVELOPMENT) Subject: Enron: Japan-Based Trader/PE and TP Issues Based on Ed's e-mail, given that Darren Delage will be in the Tokyo office entering into trades, we should pursue a back-to-back trading arrangement. That is, Darren would be working for Enron Japan ("EJ") and would enter into the trades for EJ as principal. Then, EJ would enter into mirror trades with ENA. The tax issue then is a transfer pricing issue. Ed previously advised that the margin should be based on a profit-split method. In his June 23rd memo, he advised: "Such a profit split would likely be along the lines of the various profit split methods that have been used to allocate profits among branches or local entities of banks and financial institutions that engage in global trading operations. As we expect you are aware from experience in other jurisdictions, there is no clearly agreed upon set of factors to use in profit splits for global trading operations, but typical profit split factors employed have been trader compensation, back office compensation, a location or value factor, and perhaps a risk or capital factor. If our sense is correct that a profit split would ultimately be determined to be the appropriate price method, this could entail a substantial effort to make the necessary functional analysis to develop the profit split. These are initial impressions only and, on your request, we can evaluate the appropriate pricing method for the Japan financial trader operation in detail." Basically, under a profit split approach, Enron Japan should earn a margin depending on what risks it retains and the costs it occurs with respect to these back-to-back trades. The amount of the margin is something that we'll have to develop, based on how comparable unrelated trades would be priced. Please let me know if you have any questions or need any additional information. Best regards, Susan ---------------------- Forwarded by Susan Musch/ENRON_DEVELOPMENT on 09/25/2000 08:04 PM --------------------------- Edwin.T.Whatley@BAKERNET.com on 09/24/2000 10:54:02 PM To: Susan.Musch@enron.com cc: jane.mcbride@enron.com, john.viverito@enron.com, Jeremy.Pitts@BAKERNET.com, Alan.Aronowitz@enron.com, Paul.TYO.Davis@BakerNet.com, Yukinori.Watanabe@BAKERNET.com Subject: Enron: Japan-Based Trader/PE and TP Issues Dear Susan: We confirm that we continue to recommend the basic approaches put forward in the June 23, 2000 memo: either (1) use back-to-back transactions if it is essential to have Japan-based personnel trading for ENA or other offshore affiliates or (2)(preferable purely from the tax standpoint if acceptable in light of operational considerations) have personnel at Enron Australia (or other affiliate in an appropriate time zone) handle the Japan trading. Your description of the back-to-back trades as "mirror" transactions is correct in the sense that the trades would be symmetrical in order to transfer to ENA or other offshore affiliate the position it wants to take in the covered trade. The terms might differ depending what decision is made about what mechanism to compensate Enron Japan for transfer pricing purposes, i.e., if some margin were built into the back-to-back trades to compensate Enron Japan. As discussed in our June 23 memo, the transfer pricing issues are potentially difficult in view of the limited authority in this area, but in our view, such pricing issues would present less exposure than structuring the operation so that it would constitute a PE. If you have any questions, or if we can provide further assistance with this matter, please let us know. Best regards, Y. Watanabe/E. Whatley Edwin.T.Whatley@bakernet.com Phone: 81-3-3796-5857 Fax:81-3-3479-4224 Registered in Japan as an Attorney at Foreign Law; Jurisdiction of Primary Qualification--California; Designated Law--Washington, D.C. and All U.S. States Except Louisiana -----Original Message----- From: Susan.Musch@enron.com [mailto:Susan.Musch@enron.com] Sent: Monday, September 25, 2000 10:41 AM To: Paul.TYO.Davis@BakerNet.com; Edwin.T.Whatley@BAKERNET.com Cc: jane.mcbride@enron.com; john.viverito@enron.com; Jeremy.Pitts@bakernet.com; Alan.Aronowitz@enron.com Subject: Re: Trader Paul and Ed, I want to confirm my understanding of your advice from last week (attached below). I think you're advising consistent with what Ed had advised back in June, but I'm not totally sure. That is, it would be best to have back-to-back trades between Enron Japan ("EJ") and Enron North America ("ENA"). Under this scenario, DD would be an EJ employee who would enter into the trades for EJ as principal. Then, EJ would enter into mirror trades with ENA. The issue, as I understand it, under this scenario is that the NTA could assert transfer pricing issues if the trades between EJ and ENA weren't at arms' length. Would you please confirm that this is your conclusion on how the trades should be structured? I am trying to get this structure resolved by Monday night (Houston time) so I would appreciate your thoughts in an e-mail during your Monday. Best regards, Susan Jane McBride@ENRON 10/16/2000 07:18 AM To: Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Alan Aronowitz/HOU/ECT@ECT Subject: ENA - Darren Delage Hi Susan, Just wondering whether you and Garry Hickerson had been able to work out the right structure for the work Darren is doing here. Is there any further information we can give you (because I guess Darren is continuing to do his thing). Jane
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