- 9 -
As a result of the historically high inflation in Brazil and
the periodic currency devaluations, the National Monetary Council
issued Resolution 432, which authorized borrowers of registered
foreign currency loans to hedge cruzeiros (intended to be used
for payments on the loans) against currency devaluations by
depositing foreign funds at the borrower’s Brazilian bank.
Pursuant to Resolution 432, the borrower would purchase the funds
to be deposited at its Brazilian bank at the official exchange
rate. The foreign funds remained on deposit until such time as
the borrower was required to make payment to the lender. The
foreign currency deposited at the borrower’s bank was then
transferred to the Central Bank which paid (2 days before the
date the borrower was required to make payment to the lender)
interest on the deposited funds at a rate equal to that payable
by the Brazilian borrower to the foreign lender (as set forth in
the Certificate of Registration). To the extent that interest was
paid to the foreign lender with funds deposited in the Central
Bank, the Brazilian borrower had no obligation to withhold income
taxes thereon.
5(...continued)
cases and they were immune from taxation under the Brazilian
Constitution. The Brazilian Revenue Service specifically
authorized the Central Bank to waive the withholding of tax on
remittances abroad made by the Central Bank and/or other
public-sector entities that had assumed the tax burden (i.e.,
interest due on net loans).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011