Re: Argentina Trading in Brazil ,
 Mike:

The entities that have been set up in Argentina to conduct physical gas and 
electricity trading will remain in place and will most likely be the entities 
that will execute transactions. 

A quick analysis of the tax issues that I see are as follows;

1.  Services performed out of Brazil on behalf of the Argentine companies 
will have to be paid for on an arm's length basis by the Argentine 
companies.  There will likely be a high withholding tax on such payments 
unless there is a treaty provision between Argentina and Brazil that exempt 
or reduce the withholding.  I will check on the treatment under the treaty.

2.  The issue of where the trading activity is managed will also be an 
issue.  If only back office support is provided out of Brazil and payment is 
handled per the discussion above, there will likely be no issue with 
subjecting the actual trading transactions to tax in Brazil.  However, if the 
trading activity itself is done out of Brazil, there are tax issues that must 
be addressed.  

I will begin addressing these general issues with local counsel.  However, as 
soon as you can provide details of how the operations will be consolidated, I 
can provide more precise guidance.

Regards

Lynn


To: Lynn Aven/NA/Enron@Enron, Brent Hendry/NA/Enron@Enron, Andrea 
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Subject: Argentina Trading in Brazil

We are in the process of working through the regional objective of 
consolidating intellectual capital I.E. we want Argentina trading activity to 
be consolidated into the Sao Paulo trading operations.
 
1 What are the tax,  legal, regulatory, accounting and operational 
consequences of this move?

2 Are there any commercial restrictions I need to be aware of?

3 Are there any barriers to payments and receivable management? 

4 Could accounting be managed out of Brazil? 

5 Are there any Argentine banking requirements that would require the 
payables and receivable function to remain in Argentina?

6 Are there any conflicts with Brazilian law or banking regulations?

7 Is there any additional taxation exposure such as in  the case of the US as 
we decrease Argentina functional independence?

8 Are there any Argentine regulatory conflicts with operating out of Brazil?

9 Are there any Argentine legal conflicts with operating out of Brazil?

10 How do we and can we operate Enron America del Sur S.A. and Enron 
Comercializadora de Energia S.A. out of Brazil?

12 If necessary what functions need to remain in Argentina to resolve any 
legal, regulatory, accounting or tax issues?

13 Can the stack managers be live in both Argentina and Brazil to resolve any 
identified issues? 

14 Are there any legal or tax advantages to the Brazilian operational 
structure?

15 Mostly are there any fatal flaws I need to be aware of?

Under this structure the stack managers for the following current and future 
products will ideally be operated in Brazil:

Arg Gas  Onshore  Physical 
Arg Power Onshore  Physical Pending local derivatives company

The stack manager for  Arg Power, Offshore, Financial will continue to be 
operated from North America as designed and agreed upon.

I need a quick readers digest version of what I am up against here. We can 
get into more details as we proceed.

Please advise ASAP (Monday morning if possible with the short version) so I 
can proceed with the best way to accomplish this organizational objective and 
corresponding structure.

MFG
michael.guerriero@enron.com