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collect the taxes so withheld (collecting banks). A collecting
bank was required to maintain an account for the Brazilian
Revenue Service (BRS). Taxes collected by the collecting bank
were deposited into the account of the BRS. Those amounts were
then transferred to Banco do Brazil.
Under Brazilian law, the borrower initiated payment of the
withholding tax by preparing four copies of a Documento de
Arrecadacao de Receitas Federais (DARF). The borrower submitted
the DARFs, along with the tax payment, to a collecting bank. The
collecting bank retained one copy of the DARF, returned to the
borrower two copies stamped to reflect the interest and tax
payments, and sent one copy to the BRS along with the taxes it
had collected.
The borrower paid the interest on the loans by purchasing
foreign currency at the official exchange rate, by means of an
exchange contract with the exchange bank handling the payment to
the lender. On each payment date, the borrower delivered a copy
of the DARF and the Certificate of Registration to the exchange
bank and instructed the bank to pay the interest. The exchange
bank then prepared an exchange contract that enabled the borrower
to purchase foreign currency to be paid to the foreign lender.
The exchange bank recorded the amount of interest and tax on the
Certificate of Registration and then submitted the certificate,
along with the exchange contract and the DARF, to the Central
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Last modified: May 25, 2011