|
|
Enron Mail |
Mike:
I have given further thought to your inquiry and have some additional comments that you might want to keep in mind as you plan for the integration. I have begun discussions with local counsel as to the tax impact of having a Brazilian entity charge an Argentine entity for services and should have an answer to those questions in a few days. In addition, there is a US tax issue that you need to be cognizant of because they may have an impact on the way the integrated trading operation is set up. I don't think this will be an issue based on the way you described the approach but we need to keep these concepts in mind as the process develops to avoid creating unnecessary tax friction. As I discussed yesterday, an Enron Brazilian entity providing services to an Argentine affiliate would have to charge the Argentine affiliate for those services. The income earned by an Enron Brazilian subsidiary providing services to an Enron Argentina will not be subject to tax in the US as long as the services are actually performed in Brazil. However, if the employees performing the services are employed by the Brazilian company but are working in Argentina, the income earned by the Brazilian company for providing those services in Argentina will be subject to income tax in the US. Since such income would also be subject to tax in Brazil, Enron would incur double tax. We have not discussed the details of proposed restructuring of the Argentine staff involved in trading but the following example highlights a likely scenario and the adverse US tax consequences. While it is only a hypothetical, it will give us a framework from which to work. Enron Brazil becomes the employer for all of the individuals involved in Argentine trading activity. The back office support staff is located in Brazil while one or more of the traders work out of Argentina to be close to the customer base. The income associated with the back office support is subject only to Brazilian tax since those services are actually performed in Brazil. Since the Brazilian company is providing services in Argentina by having traders located in Argentina, such income would be subject to US tax. Since the value of the services provided by the Brazilian employees would be skewed to the value associated with the traders and not the back office support staff, most of the income earned by the Brazilian company would be subject to US tax ( in addition to Brazilian tax). In order to avoid this result, you would need to have the traders located in Argentina remain on the payroll of an Argentine entity. Employees rendering services out of Brazil could be employed by the Enron Brazilian entity which would charge the Argentine entity for services provided. (It should be noted that if the traders for Argentine products actually work out Brazil, the US tax problem does not arise) As always, I am available to discuss specifics as the plans develop. Regards Lynn
|