- 45 -
policy instrument of the Government and exercising
control over credit in all its forms.
(5) The financial transactions conducted by * * *
[the Central Bank] are, in general, conducted on behalf
of the Federal Union or in its interest. In loan
transactions, agreed upon with a net interest rate, the
financial burden of the tax is transferred to the
borrower. When the borrower assumes the tax burden, what
actually happens is a gross-up of the income of the
beneficiary lender. For this reason and in order to
calculate the gross income obtained, the law determines
that the basis of calculation of the tax - the amount of
interest - be grossed up. In this way, the borrower pays
the income tax to the Union on behalf of the lender,
ensuring the net rate promised to the lender by means of
the payment of a greater amount.
(6) Following the same reasoning, * * * it is
possible to deduct, as an expense of a legal entity, the
amount of tax incident on income tax paid to third
parties, when the legal entity contractually assumes the
burden as it is a supplemental expense and not a
withholding tax.
(7) Now, when * * * [the Central Bank] acts on
behalf of the interest of the Federal Union, in cases of
transactions agreed upon with net interest rates, it
could claim a reimbursement for the amount paid in the
form of income tax. In reality, * * * [the Central
Bank] would pay the tax to the Federal Union and the
Federal Union could return it to * * * [the Central
Bank]. Under this scenario, the payment of tax, as it
would be a simple accounting transaction, could be
waived.
(8) It should be noted that, as regards the possibility
mentioned - loans of funds which must be relent to
borrowers in Brazil - said Bank must, in substitution of
the future not yet identified debtors of the tax, pay the
income tax on the interest paid during the period in
which the funds remained available for relending. The
fact is that, since the loan benefits persons which have
not yet been identified from whom the payment of
withholding tax is stipulated law, * * * [the Central
Bank] must in practice perform these acts on behalf of
such persons.
(9) Considering, therefore, the peculiarity of the
relationship * * * the Central Bank/Federal Union and
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