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Enron Mail |
Bob,
This e-mail describes the tax consequences arising from Enron North America Corp. ("ENA") offering to sell various pulp and paper products ("Products") through EnronOnline ("EOL") to counterparties throughout Europe whereby such Products would be stored in bonded warehouses located in the Netherlands. As I understand, it is intended that any ENA counterparty located in Europe will be able to purchase Products from ENA and obtain physical possession of such Products by taking delivery within bonded warehouses located in the Netherlands that are owned by unrelated parties to whom ENA would make payments for providing storage space. The tax consequences arising from ENA's sales of Products in the Netherlands are described below. (I will follow-up as soon as possible to provide you with the tax consequences arising from ENA engaging in the same activity in Belgium.) Sales within a bonded warehouse in The Netherlands In general, sales of Products by ENA in the Netherlands may be subject to taxation in both the United States and the Netherlands, thus resulting in a combined effective tax rate equal to at least 58 percent. By selling Products in a specific manner, however, ENA can substantially limit its exposure to taxation in the Netherlands and, by doing so, should only be subject to U.S. taxation (at a rate equal to 35 percent). To limit its exposure to Dutch taxation on the sale of Products stored in a bonded warehouse in the Netherlands that is owned by an unrelated party, ENA should comply with all of the following criteria: Other than the limited activity to be performed on behalf of ENA by the owner of the bonded warehouse ("Warehouseman") described below, all of ENA's activities related to the sale of Products to a counterparty should occur in the United States. For example, the pricing for the Products to be offered should be determined by an ENA employee physically located in the U.S. If any negotiations occur between ENA and a counterparty, the ENA employee engaged in negotiations should be physically located in the United States. If a contract is entered into between the parties, an ENA employee should execute the document while physically present in the United States. (As I understand, those transactions effected through EOL occur by the counterparty making an offer (i.e., clicking on the "offer" icon contained in EOL) and are accepted by ENA if (among other things) the price related to the counterparty's offer is still valid. If this is the case, then ENA's "acceptance" should be considered to occur in the U.S. if the individual with the authority to set prices is physically located in the U.S. when actually setting the price.) ENA should enter into an agreement with the Warehouseman located in the Netherlands whereby the Warehouseman's only activities on behalf of ENA consist of storing the Products and making them available to the counterparty to take physical delivery at the warehouse. The Warehouseman should not have the authority to engage in any other activity on behalf of ENA, including (but not limited to): a. negotiating any of the terms of the agreement between ENA and the counterparty; b. concluding any agreement between ENA and the counterparty on behalf of ENA; c. soliciting or receiving orders from a counterparty on behalf of ENA (and transmitting such orders back to ENA); and d. delivering Products to counterparties on behalf of ENA. Thus, for ENA to mitigate its risk of exposure to Dutch tax on sales of Products in the Netherlands, the Warehouseman should engage in only two activities on behalf of ENA: storing the Products for a fee, and making such Products available to counterparties to take possession of them at the warehouse. All other activities related to the sale of Products in the Netherlands should be undertaken by ENA in the United States. If you have any questions, please contact me at ext. 35777. Best regards, Jeff
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