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to waive the withholding of said tax on remittances
abroad made by public-sector entities that prove they
have assumed the tax burden [(i.e., have net loans)].
The Brazilian IRS's above position in paragraph 2 of SRF 368
was supported by certain decisions of the Brazilian Supreme Court
which held that public-sector entities were not required to pay
withholding tax with respect to their net loan interest remittances
abroad, because of their immunity from taxation under Article 19 of
the Federal Constitution.7
As a result of receiving SRF 368, the head of FIRCE issued
FIRCE Service Instruction No. 80 (FIRCE 80) on May 19, 1981. FIRCE
80 stated, in pertinent part:
We hereby inform the Central and Regional Divisions
that as per Official Letters SRF no. 368 and DRF
(Departmento da Receita Federal) * * * [Brazilian
IRS] no. 040/81, dated 6/10/80 and 2/4/81 respectively,
the * * * [Brazilian IRS] authorized this bank to
waive the payment/collection of withholding income tax in
the case of remittances abroad of interest and other
charges originating from currency loans and financing for
the importing of goods, when the domestic contracting
party fulfills the following requirements:
(a) it is a public-sector legal entity;
(b) it has proven that it has assumed the tax burden
[(i.e., has a net loan)];
7 Brazil is a civil law, as opposed to a common law,
country. Court decisions are technically binding only upon the
litigants of the case. Prior similar cases are not considered to
be strictly binding as precedents, although both the courts and
litigants will frequently cite such prior cases as representing
the correct legal reasoning to be applied and the proper holding
to be made.
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