Riggs National Corporation & Subsidiaries (f.k.a. Riggs National Bank and Subsidiaries) - Page 8

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          a completed DARF and payment of the tax as evidence that the proper         
          amount of the tax had been paid.2                                           
          E.  Net Loans and Gross Loans                                               
               In making loans to borrowers in Brazil and other countries, it         
          was an accepted and common practice among foreign lenders to                
          require that interest payments be made to them on a "net quoted"            
          basis.  A net loan is a loan in which the lender and the borrower           
          have agreed that all specified payments of principal and interest           
          to the lender, under the loan contract, will be made net of any             
          applicable Brazilian taxes.                                                 
               Under Brazilian law, when the Brazilian borrower under a net           
          loan assumes the burden of the withholding tax, the amount of               
          interest remitted is considered net of tax and an adjustment known          
          as a "gross-up" is required to be made for purposes of computing            
          the withholding tax.  This gross-up adjustment would be computed as         
          follows:                                                                    
                    Grossed-up interest =        Net interest                         
                                        1 - Withholding tax rate                      


          2         The borrower prepared the DARF and delivered a copy of            
          it and the registration certificate to the Brazilian bank                   
          handling the payment of interest through a foreign exchange                 
          contract.  The bank recorded the amount of interest and tax on              
          the Certificate of Registration and submitted the certificate,              
          exchange contract, and DARF to the Central Bank for approval.               
          Upon approval by the Central Bank, the bank remitted the interest           
          to the foreign lender and returned to the borrower a stamped copy           
          of the DARF, the Certificate of Registration (stamped), and a               
          copy of the exchange contract.  The borrower sent a copy of the             
          DARF to the foreign lender which then had proof (the DARF) that             
          the withholding tax was paid. The lender performed no act in                
          Brazil for the collection of tax.                                           




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Last modified: May 25, 2011