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As indicated previously, the Central Bank paid withholding tax
on its gross loan interest remittances abroad, but not on its net
loan interest remittances, including its Resolution 432 loan
program net loan interest remittances. Prior to 1982, some foreign
lenders, including certain major international banks, like
Citibank, sought to have the Central Bank pay withholding tax and
issue them DARF's with respect to the Central Bank's 432 loan
program net loan interest remittances, as this would enable these
foreign lenders to claim potential foreign tax credits. However,
their efforts were unsuccessful, as officials at the Central Bank
rejected the foreign lenders' requests to have the Central Bank
issue such DARF's to them. Central Bank officials advised the
foreign lenders that the Central Bank was not required to pay
withholding tax with respect to its net loan interest remittances
abroad because it was a tax-immune governmental entity under the
Brazilian Constitution.
At about the time of the negotiation of the phase I Brazilian
debt restructuring, a number of foreign lenders (including some
major international banks, like Citibank) intensified their efforts
to have the Central Bank issue DARF's on its net loan interest
remittances to them, including DARF's with respect to (1) the
Central Bank's 432 loan program net loan interest remittances and
(2) the Central Bank's proposed phase I DFA and phase I CGA
interest remittances (the withholding issue). These intensified
efforts by the foreign lenders to have the Central Bank issue them
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