- 74 -
their net loan interest remittances pursuant to Article 19 of the
Brazilian Constitution, a constitutional amendment presumably would
have been required to change the law. As a result, the Doniak-
Kahan draft ruling was never issued.
Top Brazilian IRS officials, instead, devised the borrowers-
to-be theory in an effort to (1) circumvent the Central Bank's tax
immunity, and (2) limit narrowly the scope of the March 1984
private ruling eventually issued as to the Central Bank's interest
remittances during the relending periods under the DFA's and CGA's,
beginning in 1984. By doing so, their ruling would not directly
conflict with existing Brazilian law and would have very little, if
any, potential effect upon other net loan borrowings by public-
sector entities.31 Indeed, in January 1985, during the subsequent
phase III negotiations, the Brazilians, in resisting the efforts of
a number of foreign lenders to have the Central Bank issue DARF's
with respect to all of its net loan interest remittances to them,
advised the BAC that there was "no room for any change * * *
[in the Central Bank's] tax immunity." The Brazilians noted, among
other things, that about 75 percent of the total debt to be
31 On cross-examination, da Silva testified that
Dornelles, upon assigning him and Patury Accioly to revise the
Doniak-Kahan draft ruling, instructed them to adhere to the
"spirit of" the Doniak-Kahan draft ruling but to keep their
opinion within the provisions of SRF 368.
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