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remitted the proceeds (in foreign currency) to the borrower via a
commercial bank in Brazil. The Brazilian bank converted the
foreign currency into Brazilian currency by means of an exchange
contract, whereby the borrower sold the foreign currency to the
bank for Brazilian currency at the official exchange rate
periodically set by the Central Bank.
The Brazilian borrower received a certificate of registration
that enabled the borrower to effect payment of interest, and
principal, in the foreign currency in which the loan was made. On
each payment date, the borrower purchased foreign currency from a
Brazilian bank at the official exchange rate. The Brazilian bank
then tendered the foreign currency to the foreign lender.
C. Payment of the Withholding Tax Generally
Where withholding tax was required, Brazilian law prohibited
remittance of an interest payment to a foreign lender without proof
of payment of the withholding tax on the interest remitted abroad.
Under Brazilian law, the borrower initiated payment of the
withholding tax by submitting a Documento de Arrecadacao de
Receitas Federais (DARF) and the accompanying tax payment to a
commercial Brazilian bank. The bank making the interest payment in
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Last modified: May 25, 2011