- 68 -
Even da Silva, the principal author of the March 1984 private
Brazilian IRS ruling issued to the Central Bank, acknowledged that
the borrowers-to-be theory was a "new theory" that he devised to
deal with an "atypical situation". He asserted that he and Luiz
Patury Accioly (Patury Accioly), the other top-level Brazilian IRS
official assigned by Dornelles to revise the Doniak-Kahan draft
ruling, were trying to save face for and avoid embarrassment to the
Brazilian IRS, because its prior issuance of SRF 368 lacked "any
legal basis" under Brazilian law.29 According to da Silva, Patury
Accioly (who was serving as a Brazilian IRS official when SRF 368
was issued) told him that SRF 368 had been issued by the Brazilian
IRS because various States and municipalities did not want to be
required to pay withholding tax on their net loan interest
remittances abroad. Most significantly, da Silva further related
that the Doniak-Kahan draft ruling, at the time it was being hotly
debated within the Brazilian IRS and the Brazilian Government,
though supported by certain Brazilian Supreme Court decisions,
29 Da Silva attributed the Brazilian IRS's "illegal"
actions in issuing SRF 368 to the fact that Brazil was under the
control of a military regime. As a result, he claimed, the
executive branch of the Brazilian Government largely could do as
it pleased. The record, however, reflects that Brazil operated
under this military regime until about 1985. Thus, the March
1984 Brazilian IRS private ruling was issued to the Central Bank
during this period of military rule. Further, on cross-
examination, da Silva acknowledged that Dornelles had no
connection to the military regime. More importantly, da Silva
did not address the fact that the position taken in SRF 368 was
consistent with the Brazilian Supreme Court's Parana II and Santo
Andre I decisions. The Santo Andre I decision was issued on June
17, 1988, a date well after the military regime had ended. We
find this aspect of da Silva's testimony not credible.
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