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issuing currency, acting as depositary of the official
gold and foreign currency reserves, providing for the
placement of domestic and foreign loans, furthering the
normal function of the exchange market, acting as a
monetary policy instrument of the government and
exercising control over credit in all its forms.
(5) The financial transactions conducted by * * * [the
Central Bank] are, in general, conducted on behalf of
the Federal Union or in its interest. In loan
transactions, agreed upon with a net interest rate, the
financial burden of the tax is transferred to the
borrower. When the borrower assumes the tax burden,
what actually happens is a gross-up of the income of
the beneficiary lender. For this reason and in order
to calculate the gross income obtained, the law
determines that the basis of calculation of the
tax--the amount of interest--be grossed up. In this
way, the borrower pays the income tax to the Union on
behalf of the lender, ensuring the net rate promised to
the lender by means of the payment of a greater amount.
(6) Following the same reasoning, * * * it is possible
to deduct, as an expense of a legal entity, the amount
of tax incident on income tax paid to third parties,
when the legal entity contractually assumes the burden
as it is a supplemental expense and not a withholding
tax.
(7) Now, when * * * [the Central Bank] acts on behalf
of the interest of the Federal Union, in cases of
transactions agreed upon with net interest rates, it
could claim a reimbursement for the amount paid in the
form of income tax. In reality, * * * [the Central
Bank] would pay the tax to the Federal Union and the
Federal Union could return it to * * * [the Central
Bank]. Under this scenario, the payment of tax, as it
would be a simple accounting transaction, could be
waived.
(8) It should be noted that, as regards the possibility
mentioned-- loans of funds which must be relent to
borrowers in Brazil--said Bank must, in substitution of
the future not yet identified debtors of the tax, pay
the income tax on the interest paid during the period
in which the funds remained available for relending.
The fact is that, since the loan benefits persons which
have not yet been identified from whom the payment of
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