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borrower is only charged with an administrative function.
As explained, under Brazilian law, interest paid to
foreign lenders like Norwest is subject to local tax.
The Brazilian borrower is required to withhold the local
tax from each interest payment. Id. at 774 * * * ,
citing Gleason Works v. Commissioner, 58 T.C. 464, 478
* * * (1972) (noting that liability for taxes "does not
rest upon a search for the person from whom the tax is
collectible but rather for the person upon whom the tax
is imposed"). The Commissioner argues that in Brazil only
borrowers have an enforceable legal obligation because
withholding is the exclusive means of collection. The
Commissioner's argument is unduly formalistic because
Brazilian banking authorities will not allow the
Brazilian borrower to buy foreign currency to pay
interest to foreign lenders without proof it has withheld
and paid the local tax. The lender thus could not escape
liability and the absence of a law specifically applying
to the lender is irrelevant. See Continental, 998 F.2d
at 518. "[T]he [local] tax is 'paid' by the [foreign]
lender * * * even if the [Brazilian government's] tax
enforcement guns are trained on the agent [that is, the
Brazilian borrower,] rather than on the principal [that
is, the foreign lender]." Id. at 519. * * *
Based on the record presented in the instant case, we see no
reason to depart from the above precedents. Brazilian law
indisputably requires non-tax-immune Brazilian borrowers to
withhold with respect to their interest remittances to foreign
lenders. Petitioner is "legally liable" under Brazilian law for
the withholding tax paid by non-tax-immune Brazilian borrowers on
their net loan interest remittances to petitioner. We thus hold
that the Brazilian withholding tax collected from and paid by these
borrowers on their net loan interest payments to petitioner is
potentially creditable to petitioner for 1980 through 1986. Of
course, the actual amount of this withholding tax that is
creditable to petitioner will depend upon our resolution of the
subsidy/pecuniary benefit issue infra.
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