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E. Determination of the Applicable Brazilian Law
Petitioner contends that the applicable Brazilian law is
correctly reflected in the Doniak-Kahan draft ruling which was
never issued by the Brazilian IRS. Petitioner asserts that
Brazilian law does not distinguish between gross loans and net
loans. It further maintains that certain Brazilian Supreme Court
decisions, like the Parana II decision, are distinguishable,
because they involved financing of imported goods subject to
Decree-law 401, not foreign currency loans.
Even if Article 19 of the Brazilian Constitution were
applicable to public-sector entities' net loan interest remittances
abroad, petitioner maintains that Article 19 prevents taxation only
between the different governmental levels. Thus, petitioner
contends, while Article 19 might prevent the Brazilian Federal
Government from taxing certain State-level and municipal-level
autarquias (e.g., the Minas Gerais decision), Article 19 would not
prevent the Central Bank and other Federal-level autarquias from
being subject to withholding tax on their net loan interest
remittances abroad.
Alternatively, petitioner maintains that this Court, pursuant
to the act of state doctrine, must accord conclusive effect to the
March 1984 Brazilian IRS private ruling issued to the Central Bank.
As even petitioner's own experts generally acknowledged that the
borrowers-to-be theory applied in the March 1984 Brazilian IRS
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