- 8 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011