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In contrast to a net loan, a gross loan is a loan in which
there is no contractual agreement between the borrower and foreign
lender to pay taxes imposed by the borrower's country. With a
gross loan, the Brazilian borrower will deduct withholding taxes
that are due from the interest specified under the loan contract
and will pay the lender the gross interest net of taxes.
From 1970 through 1986, net loans generally were the
predominant type of loan extended by foreign lenders to borrowers
in Brazil. With a net loan, the foreign lender shifts the risk of
any increase in taxes imposed by the borrower's country to the
borrower. Correspondingly, in a net loan, the borrower, not the
foreign lender, will benefit from any reduction in or waiver of
taxes imposed by the borrower's country.
F. Institution of the Subsidy/Pecuniary Benefit
Under Decree-law 1,215, enacted May 4, 1972, the Brazilian
Minister of Finance was given discretion to grant a reimbursement
or reduction of, or exemption from, the withholding tax on interest
provided: (1) The borrower's costs were reduced; (2) the loan was
of national interest, (3) the loan met the minimum repayment term
set by the National Monetary Council;3 and (4) the loan complied
with other conditions set forth by the Ministry of Finance.
3 The National Monetary Council is a Government agency
responsible for economic programs. Its members include the
Finance Minister, the Central Bank's President, and
representatives of the largest Brazilian commercial banks. The
Finance Minister presides over the council's meetings. The
council acts through the Central Bank.
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Last modified: May 25, 2011