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G. The March 1984 Brazilian IRS Ruling Issued to the Central Bank
In March 1984, the Brazilian IRS issued a private ruling to the
Central Bank that provided: (1) Beginning January 1, 1984, under
a borrowers-to-be theory, the Central Bank would be required to pay
withholding tax on its restructuring debt interest remittances to
the foreign lenders during the relending periods of the DFA’s and
CGA’s; (2) the Central Bank would have to pay this Brazilian income
tax on or before the last business day of the month following the
month in which the withholding was made; and (3) the Central Bank
would be entitled to receive any pecuniary benefit applicable to
such withholding tax payments the Central Bank made.
On March 28, 1988, the Brazilian Finance Minister issued
Portaria 164, holding that future restructuring debt interest
remittances of the Central Bank would not be subject to withholding
tax. Portaria 164 provided, in pertinent part:
The Minister of State of Finance, exercising the
authority conferred on him by Decree-law No. 1215 of May
4, 1972, resolves:
I - Exemption from withholding of income tax is granted
for remittance of interest, fees, expenses, discounts and
other charges owed to parties resident or domiciled
abroad, as a result of loan transactions, when the tax
burden has been assumed [i.e., there is a net loan] by a
legal entity of public internal law.
II - The provisions of the preceding item shall apply to
foreign currency deposits made at the Central Bank
according to regulations of the National Monetary
Council.
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