David and Heidi,

Hope you enjoyed your Easter holiday and your Anzac holiday!

With respect to your question of whether the financial trader services can be 
charged at cost or must have a 7.5% mark-up, I received advice from Chris 
Catt at PWC-Sydney last summer that there needed to be a mark-up for these 
services.  Given the skills required by the financial trader and the risk 
associated with the transactions, Chris advised that there needed to be a 
mark-up over cost based on a recent ruling by the ATO.

The ATO issued TR 1999/1 in January 1999, which provides a safe-harbor for de 
minimis services that are provided by an Australian company and meet certain 
monetary limitations.  Under the de miminis safe harbor, where the costs 
associated with all services provided by Enron Australia Pty Limited to 
offshore affiliates do not exceed A$500,000 in a year, the safe harbor 
mark-up of 7.5% may be available.  Paragraph 86 of the ruling sets forth the 
requirements as follows:

"As mentioned in paragraph 77, the Commissioner will apply a similar 
administrative practice in de minimis cases where the total direct and 
indirect costs of supplying services to Australian or foreign associated 
enterprises, as appropriate, is not more than $500,000 in a year.  The 
practice applies to all intra-group services supplied or acquired where the 
relevant cost limit is not exceeded.  Therefore, in some cases, it might be 
applicable to all intra-groups services both supplied and acquired.  The 
transfer prices that must be used, and the conditions for their use, are the 
same as those specified in paragraphs 82 to 84.  As for the practice in 
relation to non-core services, all taxpayers in a group must use the same 
mark-up, for incoming and outgoing services, in respect of each foreign 
jurisdiction, but the mark-up may vary from country to country, within the 
limits described above.

Example

An Australian subsidiary of a foreign based multinational group receives 
marketing and technical assistance from a foreign associate. No other 
services are acquired by any Australian member of the group from its foreign 
associated enterprises.  The total direct and indirect costs of providing the 
services to the Australian subsidiary for the year are $200,000.  As long as 
the amount actually charged for the services is not more than $215,000 (or 
$220,000 in the circumstances outlined in paragraph 83), the Commissioner 
would not require the taxpayer to establish an arm,s length price for the 
services."

Based on discussions we had late last summer, we thought that the A$500,000 
threshold could be met.

To my knowledge, the recent changes and proposed changes to the Australian 
tax rules would not affect TR 1999/1.  Please let me know if you have seen 
anything to the contrary.  Consequently, to my knowledge, we are still under 
these guidelines.  I,m not sure, David, what you mean by 100% being current 
practice as stated in your April 18th e-mail.  I am guessing that you are 
referring to the services provided under the cost sharing agreement.  Under 
that agreement, office costs are being shared by Enron Australia Pty Limited 
and 3 other Australian entities.  Here, services are being provided to an 
off-shore affiliate.  As a result, it appears that TR 1999/1 would require a 
mark-up.

I will be happy to discuss this with you both at your convenience.

Best regards,
Susan







David Minns
04/18/2000 12:22 AM
To: Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Heidi Mason/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Shari Stack@ECT 

Subject: Re: Revised Australian Services Agreement  

I've checked my notes and spoken to Heidi and it appears the delay was 
settling the mark up (107.5%) in the Agreement. Heidi believes that this 
figure can be reduced to 100% (which is current practice). If everyone is 
agreeable I will arrange execution.  



David Minns
04/18/2000 02:35 PM
To: Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Heidi Mason/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 

Subject: Re: Revised Australian Services Agreement  

Susan this is the latest version of the Services re ENA/EAPL. There is a note 
on my file that the percentage uplift. 



Shari Stack@ECT
09/18/99 06:32 AM
To: Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Alan Aronowitz@ECT, Gary Hickerson@ECT, Harry Arora@ECT, Colin 
Jackson@ECT, Paul Quilkey/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, David 
Minns/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Heidi 
Mason/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Barbara Lewis/HOU/ECT@ECT 

Subject: Revised Australian Services Agreement

Attached please find my mark-up of the Australian Services Agreement. I have 
attached a blacklined version for ease of reference. 

Apart from changing the name from ECT to ENA, I have modified clause 1 in 
Schedule 1 to more accurately reflect the intended products.



Please call me if any questions. 

Many thanks, 

Shari

 
---------------------- Forwarded by Shari Stack/HOU/ECT on 09/17/99 02:25 PM 
---------------------------


Susan Musch@ENRON_DEVELOPMENT
09/15/99 07:30 PM
To: Shari Stack@ENRON_DEVELOPMENT, Alan Aronowitz@ECT, Gary Hickerson@ECT, 
Harry Arora@ECT, Colin Jackson@ECT, Paul 
Quilkey/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, David 
Minns/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Heidi 
Mason/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:  
Subject: Draft of Australian Services Agreement

Attached is a draft of the services agreement for the financial trading 
services to be provided by the Australian trading office for ECT-Houston.  
Please review the agreement and let me know if you have any questions, 
comments or revisions.

Best regards,
Susan