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There is no room for any change as regards * * * [the
Central Bank's] tax immunity. As on Phases I and II,
withholding tax receipts shall only be provided to the
creditors for the initial period during which the amounts
remain deposited with the Central Bank for relending to
borrowers in Brazil (Relending Period), based on the
concept of "borrowers to be". No withholding tax shall be
collected on amounts redeposited with the Central Bank as
a result of the relending flexibility referred to above,
as occurs with other similar deposits held by the Central
Bank. Politically speaking, there is no ground for any
material change in the Brazilian withholding tax system,
when Mexico negotiated their debt rescheduling without
having to make any change on their fiscal policies. In
fact, around 75% (US $36 billion) of the total amount of
debt to be rescheduled (US $48 billion) is exempt from
withholding tax on the grounds of being considered
governmental debt.
Furthermore, were the Central Bank to provide the
creditors with tax receipts during the Relending Period,
this would disencourage [sic] the relendings themselves,
with negative consequences over the necessary regular
flow of funds for the financing of the Public and Private
Sectors. As to the subject of withholding tax on loans
with Phase III funds, the possibility of determination of
a higher limit (over 10 years) for withholding is under
consideration and tax exemption shall be dealt with
altogether with the level of spread. It must always be
kept in mind that it is essential to keep in relation
both the domestic interest rates and the financial costs
of external borrowing. The increase in the latter will
lead to an increase in domestic interest rates, in real
terms, which is detrimental to the economic development
and to the degree of freedom of monetary policies.
S. Central Bank's Payment of Withholding Tax on Its Restructuring
Debt Interest Remittances and the Caixa Unico System
In Brazil, Banco do Brazil, which among other things operated
as a commercial bank, was the Brazilian National Treasury's agent
for payment of taxes. During the years in issue, the Central Bank
collected and paid over to Banco do Brazil, for the account of the
National Treasury, withholding taxes, export taxes, taxes on
financial operations, and social security taxes. The withholding
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