- 15 -
thereon; correspondingly, the Brazilian borrower received no
subsidy.
If the 432 program loan was a gross loan, the Central Bank
would pay the withholding tax due on the interest payable to the
foreign lender during the period the funds were deposited in the
Central Bank. If the 432 program loan was a net loan, the Central
Bank would pay no withholding tax with respect to the interest
payable to the foreign lender.
K. Brazilian Tax Law in General
The Brazilian tax system is divided into three types of
authority: The Federal Constitution of Brazil (Federal
Constitution), the National Tax Code, and ordinary Federal, State,
and municipal legislation.5
The Federal Constitution divides the authority to tax among
the Federal Government, the States, and the municipalities of
Brazil. Pursuant to Article 21 of the Federal Constitution, the
Federal Government has authority to impose all types of taxes,
including a tax on income, except as otherwise granted by the
Federal Constitution to the States or municipalities.
5 The National Tax Code is a complementary law and has an
authoritative status below that of the Federal Constitution but
above that of ordinary laws. Where the National Tax Code
conflicts with an ordinary law, the National Tax Code will
prevail.
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