Re: Financial Trading in Brazil

Sami:

Does this change in treatment of financial trading open up significantly more
trading opportunities for Enron?

Mark

Sami Arap@ENRON
04/16/2001 08:34 AM

To: Mark E Haedicke/HOU/ECT@ECT
cc:
Subject: Re: Financial Trading in Brazil

Mark;

The Brazilian Central Bank created a structure of access to the interest
rate, currency and commodity swaps international market that is based on 3
main points as follows:

payments and receipts arising from hedging modes (trading on the offshore
stock market as well as on the forward, futures and option markets) as well
as remittances to or from abroad inherent to these transactions (spread,
commissions, premiums and so on) will be effected in foreign currency upon
prompt closing of exchange on the commercial exchange market;
remittances intended for the opening of current accounts with brokerage
companies abroad as well as for deposits of collateral margins are permitted;
and
upon preliminary approval by the Central Bank, remittances abroad intended
for collateral and escrow deposits linked to interest rate and currency swaps
can be effected.

The key issue of this structure is that the income tax on remittances to
overseas that can be demonstrated to be remittances usual, normal and
necessary for hedging transactions on the international market can be reduced
by 100%. In addition to any positive results for the foreign institutions
from these operations, the spread, commissions, premiums, and other related
sums. when remitted abroad, will not be subject to any income tax
withholdings. With respect to the tax treatment of losses that Brazilian
companies may incur as a result of hedging operations, such losses may be
deductible for the purpose of determining taxable profits, only in the event
that they occur in investments on exchanges abroad. If these transactions
are not carried out on such exchanges, the losses will not be deductible when
determining the taxable profits.

Brazilian entities are not prevented to enter into swap or other derivative
transactions on the international market in case they do not meet the
requirements established above. The consequences, however, will be the
following:

payments and receipts arising from such transactions as well as remittances
to or from abroad inherent to these transactions could not be effected in
foreign currency upon prompt closing of exchange on the commercial exchange
market, but only through mechanisms available in the or related to the
floating (or "tourism") exchange rate;
the inflow of foreign currency through the floating rate market would be
subject to IOF (tax on financial transactions) assessed at the rate of 2% on
the Brazilian currency equivalent of the foreign funds entering Brazil;
remittance of any amounts that are considered income of a foreign resident
shall be subject to withholding income tax at 15% or at a reduced rate if the
creditor is domiciled in a country with which Brazil has entered into a
double taxation treaty .

To the best of my knowledge, you will appreciate that the ISDA Master
Agreement has been widely used by foreign swap dealers with Brazilian
counterparties.

Rgds,

Sami

From: Mark E Haedicke@ECT on 04/11/2001 02:47 PM CDT
To: Sami Arap/SA/Enron@ENRON
cc:

Subject: Re: Financial Trading in Brazil

Sami: What is the net net of the new policy?

Sami Arap@ENRON
04/10/2001 03:36 PM

To: Brent Hendry/NA/Enron@Enron, Mark Taylor/HOU/ECT@ECT, Alan
Aronowitz/HOU/ECT@ECT, Elizabeth Sager/HOU/ECT@ECT
cc: Mark E Haedicke/HOU/ECT@ECT
Subject: Financial Trading in Brazil

- CHAR5.DOC
- M2689III.DOC