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Following the Central Bank's submission of the above ruling
request, by around June or July 1983, certain employees of the
Brazilian IRS prepared a proposed draft ruling which held that the
Central Bank was required to pay withholding tax on its
restructuring debt interest remittances to the foreign lenders
during the relending periods of the DFA's and CGA's, because it was
subject to the same withholding tax collection and payment rules
that were applicable to non-public-sector entities (the Doniak-
Kahan draft ruling). The Doniak-Kahan draft ruling was hotly
debated within the Brazilian IRS and the Brazilian Government
because of its conflict with SRF 368 and existing Brazilian Supreme
Court decisions. As a result, Dornelles (the head of the Brazilian
IRS) decided he could not approve the issuance of the Doniak-Kahan
draft ruling to the Central Bank.
In about early January of 1984, Dornelles directed two top-
level Brazilian IRS officials to redraft and revise the Doniak-
Kahan draft ruling. He instructed them to reach the same holding
as in the Doniak-Kahan draft ruling (i.e., that the Central Bank
was required to pay withholding tax on its restructuring debt
interest remittances to the foreign lenders during the relending
periods of the DFA's and CGA's) but to keep their revised ruling
within the provisions of SRF 368. In revising the Doniak-Kahan
draft ruling, these two Brazilian IRS officials devised and
formulated a new theory that the Central Bank was required to pay
withholding tax on its restructuring debt interest remittances
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