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interest remittances. We are unable to ascertain what, if any,
entries were made to determine: (1) Whether the Central Bank was
reimbursed by the National Treasury for its withholding tax
payments; or (2) whether the Central Bank received the pecuniary
benefit based on those withholding tax payments. The Central
Bank's ruling request raised these two matters, and the March 1984
Brazilian IRS ruling discussed the two possibilities.21
Beginning in 1984, the Central Bank issued DARF's to the agent
banks of the foreign lenders to whom it transmitted loan payments
under the DFA's and CGA's, reflecting its withholding tax payments
on restructuring debt interest remittances during the relending
periods of the DFA's and CGA's. From 1984 through 1988 the Central
Bank issued a total of 324 DARF's to these agent banks.
T. Foreign Tax Credit Claimed by Petitioner in Dispute Between The
Parties
On its 1980 through 1986 income tax returns, petitioner
generally reported its interest income and withholding tax payments
with respect to its Brazilian loans on a cash basis. Petitioner
claimed a foreign tax credit and reported interest income gross-up
when it received a DARF. On its returns covering the period from
1980 through June 28, 1985, petitioner reduced the amount of
21 An expert witness for petitioner acknowledged that the
Central Bank might be entitled to reimbursement from the National
Treasury for its restructuring debt withholding tax payments, as
the Central Bank was acting on the Brazilian Government's behalf
and in the national interest. However, he claimed that the
Central Bank would have to ask the Brazilian Government for
reimbursement and that any such expenditure would require the
Brazilian Congress' approval.
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