- 41 - 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 thePage: Previous 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Next
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