David,

Based on the e-mail that I sent out on June 30th (and that I have attached 
below), I was under the presumption that the Enron party to the GTCs would be 
Enron Australia Finance Pty Ltd.  This is because we are dealing with 
Australian weather derivatives and I was presuming (right or wrong) that such 
derivatives would be on the books of the Sydney trading office.  Please let 
me know if this is not the case.

Best regards,
Susan






David Minns
07/06/2000 12:35 AM
To: John Viverito/Corp/Enron@ENRON
cc: Jonathan Whitehead/AP/Enron@Enron, Nicholas.O'Day@enron.com@ENRON, Susan 
Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Justin 
Timothy/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Raymond 
Yeow/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mark Taylor@ECT 

Subject: Re: EOL GTC's for Weather Derivatives In Australia  

John please see attached GTCs for Australian weather. They are essentially 
the same as the example that was forwarded to B&M when they got the brief to 
advise on weather derivatives last month. 

I understand that B & M are having second thoughts on the gambling question 
and are due to come in with an advice on the point. 

There is also a question as to whether the Enron party will be Enron 
Australia Finance Pty. Ltd. or Enron Japan KK. From a tax perspective Susan 
what would you prefer? 

On a related issue what Enron company is on the Passwords Applications and 
ETAs that are being sent out? Although from a legal perspective it does not 
matter it may increase acceptance if it were Enron Japan KK.

          

 


From: John Viverito@ENRON on 05-07-2000 05:19 CDT
To: David Minns/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Jonathan Whitehead/AP/Enron@Enron, Nicholas.O'Day@enron.com 

Subject: EOL GTC's for Weather Derivatives In Australia

David-

Please forward an electronic copy of the EOL GTC's for weather derivatives in 
Australia.  Thanks for your assistance.

Cheers,

John




Susan Musch
06/30/2000 11:30 AM
To: Jeff Blumenthal@ECT
cc: Heidi Mason/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, David 
Minns/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Stephen H Douglas@ECT, Paul 
Quilkey/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT (bcc: Susan 
Musch/ENRON_DEVELOPMENT)

Subject: Tax Advice on AUS and JPN CDD and HDD Weather Swaps

Below is a summary of the tax advice that I received from our outside 
advisors in Tokyo and Sydney on the Sydney trading office entering into cash 
settled weather derivative trades with Japanese counterparties:

Japanese Tax Advice

1. Swap, Options and Other Financial Derivative Transactions

Based on the current practice of the Japanese tax authorities, standard 
swaps, options and similar financial transactions with symmetrical payment 
flows should not be subject to withholding tax. However, to the extent that 
Enron transactions involve asymmetrical payments, concern exists that imputed 
interest from the imbedded loan could be subject to interest withholding tax.

2. Consumption Tax (VAT) and Excise Taxes

Although Japan imposes a 5% consumption tax (VAT), financial transactions are 
generally not subject to the consumption tax, so cash settled derivative 
transactions should generally not be subject to consumption tax.  Japan 
imposes various kinds of excise taxes.  These excise taxes generally apply to 
physical importation and domestic sale and delivery of covered products and 
should generally not apply to purely financial derivatives transactions which 
reference commodity prices.

3. Collateral for Derivatives Transactions

If Enron entities will take collateral from Japan-based customers in 
connection with derivative transactions, depending upon the specific 
arrangements, withholding tax liability might arise.  For example, if an 
Enron trading entity takes cash collateral from a Japan-based customer and 
pays interest on it, such interest payments could be subject to local 
withholding tax when paid to the Japanese resident customer.


Australian Tax Advice

1. Swap, Options and Other Financial Derivative Transactions

Based on the summaries of the products attached to Justin Timothy,s June 12th 
e-mail to Mario Parra Cardoso and Dale Neuner:

(1) the swap income or deduction should be recognized on a due and payable 
basis (rather than on an accrual basis over the term of the swap), and
(2) there should not be any interest withholding tax imposed on the swap 
payments because there does not appear to be any linkage between the swap 
payment and "interest" as defined for Australian tax purposes.

Note that there is an Australian tax proposal to impose withholding tax on 
other Australian source income.  Although no details are yet available, it is 
expected that the Australian government will not impose withholding tax where 
the income would constitute "business profits" of any entity in a treaty 
country (such as Japan) which does not have permanent establishment in 
Australia.  Thus, based on the current proposal, it is unlikely that such a 
withholding tax, if enacted, would apply to the swap payments.  However, this 
could change depending upon the rules actually enacted.

2. GST (VAT)

Effective July 1, 2000, the Goods and Services Tax ("GST") will tax at a 10% 
rate the consumption of most goods and services in Australia.  (It does not 
apply to consumption outside of Australia, e.g. exports.)

A swap payment to a Japanese counterparty will be GST-free. This means that 
the Australian trading office would be able to claim refunds on a portion of 
the GST paid on its rents and other expenses.


Please let me know if you have any questions or need any additional 
information.

Best regards,
Susan