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