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Article 128 of the National Tax Code provides that the
liability for a tax claim may be assigned to a third party who is
related to the taxable event which gives rise to the tax
obligation.
Since 1943, Brazilian Federal legislation generally has
provided for withholding tax imposed on interest paid by Brazilian
borrowers to foreign entities, at the following rates:
Rate Years
10% 1944-47
15 1948-54
20 1955-58
25 1959-74
5 1974-75
25 1975-Present
Article 11 of Decree-law 401,6 which was enacted on December
30, 1968, provides as follows:
Subject to the deduction of the Income Tax at source
is the value of interest remitted to a foreign country,
payable by virtue of purchase of goods on installment,
even when the beneficiary of the revenue is the actual
seller.
6 Prior to Decree-law 401, the Brazilian Supreme Court,
in several decisions, held that remitted interest with respect to
goods purchased abroad on an installment basis could not be
taxed, because the interest was part of the purchase price and
had been earned abroad. Decree-law 401 was passed to clarify
that generally such interest was taxable under Brazilian law.
Its provision in Article 11 that the taxable event was the
remittance of the interest and the borrower was the contribuente,
generated considerable controversy, because that provision seemed
contrary to the normal rules of Brazilian tax law. In a June 14,
1972, decision, however, the Brazilian Supreme Court upheld the
validity of Decree-law 401.
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