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Central Bank’s obligation to withhold taxes is determined by the
person upon whose behalf the Central Bank is conducting the
transaction. Specifically, when the Central Bank acts on behalf
of the interest of the Brazilian Government, it could claim a
reimbursement for the amount paid. In reality, the Central Bank
would pay the tax to the Brazilian Government and the Brazilian
Government could return it to the Central Bank. The ruling
concludes that, under that scenario, the payment of tax would be
a simple accounting transaction and could be waived. The ruling
notes, however, that, with respect to loans of funds that were to
be re-lent, the Central Bank was required to:
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 withholding tax is
stipulated law, * * * [the Central Bank] must in
practice perform these acts on behalf of such persons.
(9) Considering, therefore, the peculiarity of the
relationship * * * the Central Bank/Federal Union and
the Central Bank/Final borrowers of the relent funds, I
believe that, as regards the funds that must be
released to those as yet unidentified borrowers in
Brazil, * * * [the Central Bank] must as a substitute
for such borrowers pay the income tax incident on the
interest from January 1, 1984 to the end of the period
of availability for such funds to be relent. [Emphasis
supplied.]
The Finance Minister’s ruling makes clear that when the
Central Bank paid the withholding taxes, it was not acting on
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