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period of about 16 or 18 months during which funds could be re-
lent to other Brazilian persons and companies (the re-lending
period). Originally, the re-lending period was to end on June
30, 1985, but it was extended to March or April 1986.
On or about December 28, 1982, the head of the Central
Bank’s Department of Foreign Capital Fiscalization and
Registration (FIRCE) submitted a “consulta” or ruling request to
the BRS. FIRCE sought a ruling regarding the Central Bank’s
obligation to pay withholding taxes on interest paid on the
restructuring loans and its right to the attendant
subsidy/pecuniary benefit. In reviewing the ruling request, the
BRS formulated a theory that the Central Bank was required to pay
withholding tax on its restructuring debt interest remittances
during the re-lending periods because, until the expiration of
the applicable re-lending period, the loan funds were not
irrevocably committed to the Central Bank, and it, therefore, had
to pay withholding tax on behalf of future, unidentified
“borrowers-to-be” (the borrowers-to-be theory). The BRS
incorporated this borrowers-to-be theory into its draft ruling,
which ultimately became the final version of the ruling the BRS
issued to the Central Bank in March 1984.
By letter dated March 14, 1984, the Brazilian Finance
Minister forwarded the ruling by the BRS and his decision on the
ruling to the Central Bank’s president.
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