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foreign tax withholding and payment, if possible, the district
director may, in his discretion, accept secondary evidence that
foreign withholding was in fact withheld and paid.
A. The Parties’ Contentions
In its opening brief on remand, petitioner contends that
through direct and secondary evidence it has established that the
withholding taxes in issue were actually paid by the Central Bank
on petitioner’s behalf.
In his answering brief on remand, respondent contends that
petitioner has failed to establish that the withholding taxes in
issue were paid. Respondent maintains that (1) the evidence
petitioner relies upon is manifestly unreliable, and (2) the Central
Bank’s continuing reports that it received a “pecuniary benefit”
after June 28, 1985, suggests that the DARF’s the Central Bank
issued memorialized sham accounting entries. In this connection,
respondent argues:
Central Bank correspondence suggests that the DARFs
memorialized sham accounting entries. If someone
received a pecuniary benefit of 40% of the tax it paid,
it is reasonable to expect some level of awareness. If
the pecuniary benefit were eliminated, the taxpayer
should know that it was paying 40% more in taxes. This
is especially true when payments of hundreds of millions
of cruzeiros are involved.
Just the opposite occurred. The Central Bank
provided letters conveying the DARFs to the agent banks.
Schedules attached to each letter from the Central Bank
report each bank’s share of the relevant tax receipt and
an amount of pecuniary benefit received by the Central
Bank. * * * After June 28, 1985, the pecuniary benefit
(subsidy) rate had been reduced to zero through
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