Message-ID: <13004845.1075859980648.JavaMail.evans@thyme> Date: Mon, 4 Jan 1999 22:36:00 -0800 (PST) From: brent.hendry@enron.com Subject: Re: Brazilian Transaction Taxes Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Brent Hendry X-To: Mark E Haedicke@ECT, Mark - ECT Legal Taylor@ECT, Yao Apasu@ENRON_DEVELOPMENT X-cc: X-bcc: X-Folder: \Mark_Taylor _Dec_2000\Notes Folders\Brazil trading X-Origin: Taylor-M X-FileName: mtaylor.nsf It looks like the Brazilian tax situation will be even more problematic than in Argentina. ---------------------- Forwarded by Brent Hendry/ENRON_DEVELOPMENT on 01/05/99 09:30 AM --------------------------- Scott Neal 12/30/98 05:02 PM To: Don Black/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Scott Porter/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Brent Hendry/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, William O Butler/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Re: Brazilian Transaction Taxes FYI. ---------------------- Forwarded by Scott Neal/ENRON_DEVELOPMENT on 12/30/98 02:01 PM --------------------------- Beth Rosen 12/30/98 01:07 PM To: Scott Neal/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Jordan Mintz/HOU/ECT@ECT Subject: Re: Brazilian Transaction Taxes Scott: I have provided some comments below in response to your questions regarding Brazil trading activities. About a year ago, Jordan and I went with Brent and others to Sao Paulo to do some preliminary due diligence on Brazil trading issues. At that time there were a number of open issues regarding the legal, regulatory and commercial aspects of conducting trading activities in Brazil that would effect our planning. For example, it was not known whether a Brazil trading office would be considered a financial institution, an important characterization as financial institutions are subject to a different tax regime. In any event, the following should give you a flavor of the regime. I am also sending you under separate cover some general information regarding doing business in brazil: Brazil imposes two gross receipts taxes called Pis and Cofins. The Pis rate is 0.65% and the Cofins rates has just increased from 2% to 3% effective February 1, 1999. Pis/Cofins operate like the Argentine turnover taxes except that Pis/Cofins are federal taxes as compared to Argentina's turnover taxes which are assessed at the provincial level. Strictly speaking, Brazil law considers amounts paid for Pis/Cofins to be "social contributions" and not taxes as the funds are earmarked for certain social welfare programs. As a result, the Pis/Cofins are considered "sacred" and except as outlined below, there are no exemptions or opportunities to avoid payment of Pis/Cofins. There are only two exceptions to the payment of Pis/Cofins. First, export sales by Brazilian companies are not subject to gross receipts taxes. The second exemption is that charitable foundations are exempt from Pis and Cofins. Prior to Brazil's recently introduced tax reform package, financial institutions paid a higher rate of income tax but were exempt from the Cofins tax (Pis was still due). Now, financial institutions must pay Cofins. To mitigate the cascading effect of Pis/Cofins in some of our power project under development, we have looked at, but not implemented, forming consortiums with some of our suppliers (gas suppliers). Under this scenario, a portion of the energy payment is allocated to each supplier who is taxable only on the portion of the tariff to which he contributed. A consortium is a legal arrangement that applies to a specific transaction and specific customers. It may not be compatible in the context of a trading office. Brazil has a value added tax regime which is administered by each state. There can be mismatches between VAT paid and collected depending on the particular jurisdiction in which a commodity is bought and resold. The VAT regimes differs for gas and power trading so we would have to analyze each specific transaction in order to evaluation whether VAT would represent a cost to the Brazil tradeco. I am sending to you some information provided by Arthur Andersen which describes the VAT on sales and re-sales of gas and electricity under several scenarios, I am also checking on whether Brazil imposes any energy specific taxes and will follow up you separately on this issue. Regards and all the best in 1999. Beth To: Beth Rosen/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Brazilan Transaction Taxes Beth: I think we have a pretty good handle on these issues with respect to the Pis/Cofins--not pretty and, in fact, a worse scenario than we face in Argentina. Would you communicate to Scott. Thanks. Jordan PS-I must have just missed you today to run-I'm so sorry I couldn't make it, but it was for a very valid reason. ---------------------- Forwarded by Jordan Mintz/HOU/ECT on 12/16/98 12:15 PM --------------------------- From: Scott Neal AT ENRON_DEVELOPMENT@CCMAIL on 12/16/98 02:38 PM To: Jordan Mintz@ECT, Beth Rosen AT ENRON_DEVELOPMENT@CCMAIL cc: Yao Apasu@ECT, "Don Black/ENRON_DEVELOPMENT" AT ENRON_DEVELOPMENT@CCMAIL, Scott Porter AT ENRON_DEVELOPMENT@CCMAIL, Brett R Wiggs AT ENRON_DEVELOPMENT@CCMAIL, "Steve Pearlman/ENRON_DEVELOPMENT" AT ENRON_DEVELOPMENT@CCMAIL, Randy Young AT ENRON_DEVELOPMENT@CCMAIL, Brent Hendry AT ENRON_DEVELOPMENT@CCMAIL Subject: Brazilan Transaction Taxes Can you give us a briefing on Brazilian transaction taxes? My initial feeling is that we are going face tax issues similar to those we are dealing with in Argentina. We have several deal makers in Sao Paulo that have begun contact potential customers. I think it is important to start the education process now for all of us so that we can 1) determine ways to structure deals to limit tax liability and 2) form a strategy to lobby for changes/reform/exemption. Some initial questions: How are marketing/trading companies activities treated? Are there any energy specific taxes? If turnover/gross receipt tax are applicable, is there any special treatment for trading companies? Are transaction taxes federal, state, or local in nature? Thanks for your help.