Riggs National Corporation & Subsidiaries - Page 9




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          foreign currency (which was subject to Brazilian tax) required the          
          borrower to submit a completed DARF and the tax payment as evidence         
          that the proper amount of the tax had been paid.7                           
          D. Net Loans and Gross Loans                                                
               As previously indicated, phase I DFA, phase I CGA, phase II            
          DFA, phase II CGA, and phase III DFA loans were net loans.                  
               In making loans to borrowers in Brazil and other countries, it         
          was an accepted and common practice among foreign lenders to                
          require that interest payments be made to them on a “net quoted”            
          basis.  A net loan is a loan in which the lender and the borrower           
          agree that all payments of principal and interest to the lender,            
          under the loan contract, will be made net of any applicable                 
          Brazilian taxes.                                                            
               Under Brazilian law, when the Brazilian borrower under a net           
          loan assumes the burden of withholding tax, the amount of interest          
          remitted is considered net of tax and an adjustment known as a              



               7    The borrower would prepare the DARF and deliver a copy            
          of it, and the registration certificate, to the Brazilian bank              
          handling the payment of interest through a foreign exchange                 
          contract.  The bank would then record the amount of interest and            
          tax on the certificate of registration and submit the                       
          certificate, exchange contract, and DARF to the Central Bank for            
          approval.  Following approval by the Central Bank, the bank would           
          remit the interest to the foreign lender and return to the                  
          borrower a stamped copy of the DARF, the certificate of                     
          registration (stamped), and a copy of the exchange contract.  The           
          borrower would send a copy of the DARF to the foreign lender,               
          which then had proof (the DARF) that the withholding tax had been           
          paid.                                                                       





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