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behalf of the Brazilian Government, but rather it was acting on
behalf of the borrowers-to-be.
As pointed out by the U.S. Court of Appeals for the District
of Columbia Circuit in Riggs II, 163 F.3d at 1366:
The Minister deemed it appropriate to “look through”
the Central Bank to those ultimate private
borrowers--so-called “borrowers-to-be”-- for purposes
of deciding the proper tax treatment of the loans. * *
* The Minister concluded that the “borrowers-to-be”
aspect of the loans compelled an analogy to the garden
variety private borrower situation * * *. [Emphasis
supplied.]
The Court of Appeals further stated: “The Minister’s order to the
Central Bank to withhold and pay the income tax on the interest
paid to the Bank goes beyond a mere interpretation of law. * * *
Such an order has been treated as an act of state.” Id. at 1367.
With respect to the pecuniary benefit, the Finance
Minister’s ruling holds that once the tax has been paid, the
pecuniary benefit is applicable in accordance with Brazilian law.
Under Brazilian law, borrowers were granted a pecuniary benefit
equal to a percentage of the withholding tax paid on the interest
due on net loans. In the case of repass loans, where the
borrower is a bank but the funds are re-lent to Brazilian
persons, the borrowing bank collects the tax from the repass
borrowers and is obligated to transfer the total value of the
pecuniary benefit to those repass borrowers. The Finance
Minister’s ruling treats the Central Bank as a borrowing bank in
a repass loan transaction. The Central Bank must pay the
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