Riggs National Corporation & Subsidiaries - Page 10




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          “gross up” is required for purposes of computing the withholding            
          tax.  This gross-up adjustment is computed as follows:                      
               Grossed-up interest  =       Net interest                              
                                   1 - Withholding tax rate                           
              In contrast to a net loan, a gross loan is a loan in which              
         there is no contractual agreement between the borrower and the               
         foreign lender to pay taxes imposed by the borrower’s country.  With         
         a gross loan, the Brazilian borrower deducts withholding taxes that          
         are due from the interest specified under the loan contract and pays         
         the lender the gross interest net of taxes.                                  
              From 1970 through 1986, net loans generally were the                    
         predominant type of loan extended by foreign lenders to borrowers            
         in Brazil.  With a net loan, the foreign lender shifts the risk of           
         any increase in taxes imposed by the borrower’s country to the               
         borrower.  Correspondingly, in a net loan, the borrower, not the             
         foreign lender, benefits from any reduction in or waiver of taxes            
         imposed by the borrower’s country.                                           
         E.  Institution of the Subsidy/Pecuniary Benefit                             
              Under Decree-law 1,215, enacted May 4, 1972, the Brazilian              
         Minister of Finance was given discretion to grant a reimbursement            
         or reduction of, or exemption from, the withholding tax on interest          
         provided:  (1) The borrower’s costs were reduced; (2) the loan was           
         of national interest; (3) the loan met the minimum repayment term            









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