This excerpt taken from the TNE 20-F filed Jun 15, 2007.
Distribution of interest on capital
Brazilian corporations may make payments to shareholders characterized as interest on capital of TNL as an alternative form of making dividend distributions. The rate of interest may not be higher than the TJLP as determined by the Brazilian Central Bank from time to time (9.75% per annum for the three-month period beginning April 2004). The total amount distributed as interest on capital may not exceed the greater of (i) 50% of net income (before taking such distribution and any deductions for income taxes into account) for the year in respect of which the declaration is made; or (ii) 50% of retained earnings for the year prior to the year in respect of which the declaration is made. Payments of interest on capital are decided by the shareholders on the basis of recommendations of TNLs Board of Directors.
Distribution of interest on capital paid to Brazilian and non-Brazilian holders of our preferred shares, including payments to the Depositary in respect of our preferred shares underlying ADSs, are deductible by TNL for Brazilian corporate income tax purposes. Such payments are subject to Brazilian withholding tax at the income tax rate of 15%, except for payments to persons who are exempt from income tax in Brazil, which payments are free of Brazilian income tax, and except for payments to persons situated in tax havens, which payments are subject to an income tax at a 25% rate.
The Board of Directors of TNL may recommend at their sole discretion that distributions of profits be made in form of interest on capital instead of an ordinary dividend payment.
Amounts paid as interest on capital (net of applicable withholding tax) may be treated as a payment of the mandatory dividend that TNL is obligated to distribute to its shareholders as provided for in Brazilian corporate law. Distributions of interest on capital in respect of our preferred shares, including distributions to the Depositary in respect of our preferred shares underlying ADSs, may be converted into U.S. dollars and remitted outside of Brazil, subject to applicable exchange controls.