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interest abroad with respect to a loan to finance the construction
of State highways, because it was not immune from paying this
withholding tax under Article 19 of the Brazilian Constitution.
The loan involved in the Parana I--1st Panel decision was a gross
loan. The Brazilian Supreme Court Justice reporting the case
reasoned that if constitutional immunity from the withholding tax
were held to apply, then the beneficiary of the immunity would be
the foreign creditor, not the State of Parana. This Justice quoted
with approval the following reasoning given in the dissent to the
lower Brazilian Federal Court of Appeals' majority decision:
If the State of Parana were the beneficiary of an
increase in its assets, on which the Union were demanding
the tax, it would be granted immunity, according to the
Constitution.
But since it appears in a different capacity in the
litigation, namely, as remitter of interest on behalf of
another, I hold that the argument alluding to immunity is
inadmissible.
On October 15, 1975, the full Brazilian Supreme Court issued
its unanimous decision in State of Parana v. Central Bank
(hereinafter for convenience referred to as the Parana II
decision), holding the State of Parana was not required to pay
withholding tax on its remittance of interest abroad with respect
to a loan to finance a railroad, because it was immune from such
withholding tax under Article 19 of the Brazilian Constitution.
The loan involved in the Parana II decision was a net loan. The
Brazilian Supreme Court Justice reporting the case distinguished
the Parana I--1st Panel decision, and reasoned as follows:
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