- 83 -
Central Bank, under Brazilian law, was constitutionally immune from
having to pay withholding tax with respect to its net loan interest
remittances abroad. Pursuant to its receipt of SRF 368 from
Dornelles (the head of the Brazilian IRS), the Central Bank, in May
1981, issued FIRCE 80 and did not require public-sector entities,
like itself, to pay withholding tax on their net loan interest
remittances abroad, regardless of whether the interest remittances
originated from a currency loan or from an import financing loan.
Da Silva (a fact witness, as well as petitioner's expert witness,
and the author of the March 1984 Brazilian IRS private ruling
issued to the Central Bank) essentially confirmed that, during
1983, when the Brazilian IRS's proposed issuance of the Doniak-
Kahan draft ruling that conflicted with SRF 368 was being hotly
debated within the Brazilian Government and the Brazilian IRS,
certain existing Brazilian Supreme Court decisions, including the
Parana II decision, supported the position taken in SRF 368. As a
result of this debate, Dornelles decided that he could not approve
the issuance of the Doniak-Kahan draft ruling to the Central Bank.
Instead, in the March 1984 Brazilian IRS ruling that eventually was
issued to the Central Bank, top Brazilian IRS officials contrived
to get around the constitutional tax immunity of the Central Bank
and other public-sector entities, through applying the novel
borrowers-to-be theory. As indicated by the Brazilians' comments
to the BAC in January 1985, during the phase III negotiations,
although the Brazilians were willing to continue applying the
Page: Previous 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 NextLast modified: May 25, 2011