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sets the range of acceptable interest rates and periodically
establishes the minimum repayment terms of loans. Once the Central
Bank approved a loan, the lender remitted the proceeds in foreign
currency to the borrower via a commercial bank in Brazil. The
Brazilian bank converted the foreign currency into Brazilian
currency by means of an exchange contract, whereby the borrower
sold the foreign currency to the bank for Brazilian currency at the
official exchange rate periodically set by the Central Bank.
The Brazilian borrower received a Certificate of Registration
that enabled the borrower to effect payment of interest and
principal in the foreign currency in which the loan was made. On
each payment date, the borrower purchased foreign currency from a
Brazilian bank at the official exchange rate. The Brazilian bank
then tendered the foreign currency to the foreign lender.
D. Payment of the Withholding Tax Generally
Where withholding tax is required, Brazilian law prohibited
remittance of an interest payment to a foreign lender without proof
of payment of the withholding tax on interest remitted abroad.
Under Brazilian law, the borrower initiated payment of the
withholding tax by submitting a Documento de Arrecadacao de
Receitas Federais (DARF) and the accompanying tax payment to a
commercial Brazilian bank. Any bank making an interest payment in
foreign currency which was subject to Brazilian tax would require
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Last modified: May 25, 2011