The Paraguayan transfer pricing (TP) laws refer to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD Guidelines); however, they are not binding for Paraguay. Currently, the TP rules are governed by Law 6380/2019.
Arm’s Length Principle
The arm’s length principle is defined in Paraguay in Article 35 of Law 6380/2019. Corporations as income taxpayers are required to establish income and deductions on an arm’s length basis on transactions with related parties, either resident or non-resident, which either is outside the corporate income tax system or is exempt from it. The tax authority has the authority to make adjustments when the price or consideration in a transaction, was not agreed to by otherwise independent parties in comparable transactions.
Related Party Definition
Paraguay defines a related-party transaction as any transaction that occurs between people or entities where there is direct or indirect control of more than 50% over the voting capital (which includes transactions with parent companies and Paraguay PEs). Moreover, a transaction is considered to be related when there is a relationship between residents of Paraguay and the other parties, where the other parties are described as being in a low- or zero-tax jurisdiction (for example free-zone users or maquiladora companies). The concept of “persons” could include individuals, foreign PEs, trusts, and other entities of a similar nature, whether domestically or in a foreign jurisdiction.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Paraguay are:
- Comparable Uncontrolled Price Method (CUP)
- Resale Price Method (RPM)
- Cost Plus Method (CPM)
- Transactional Net Margin Method (TNMM)
- Profit Split Method (PSM)
In addition, Paraguayan law allows for the usage of an additional method, which is applicable for certain products such as soybean and its derivatives (oils, flour, pellets, and expellers), corn, rice, and wheat.
Comparability Analysis
An important part of the transfer pricing compliance is the comparability analysis. Below is a summary of the main points regarding comparability analysis in Paraguay:
In practice, Paraguay follows the OECD Guidelines and applies the comparability analysis outlined in Chapter III, as regulated in the Ministerial Order, articles 5 and 7.
In comparability analysis of transfer pricing, it is used data that truly represents the commercial or financial activities of the tested party so that unrelated segments or related party transactions do not disrupt the comparability analysis. Segmentation of financial data is not permitted unless this is justified. Comparables that experience operating losses may only be included in a comparability analysis if there is proper documentation concerning industry or market conditions. The analysis will follow a six-step process consisting of functional analysis, selection of comparables and methods, and adjustments to enhance reliability while ensuring observance of the arm’s length principle. Paraguay’s legislator does not allow for the usage of secret comparables, but it states a preference for internal comparables over externals.
Documentation Requirements
In Paraguay, companies engaged in transactions with related parties must retain transfer pricing documentation that demonstrates compliance with the arm’s length principle, as outlined in Article 39 of Law 6380/2019. This includes identifying related parties, proving their direct or indirect participation, describing the functions, assets, and risks involved, detailing the amounts and types of related-party transactions, and specifying the transfer pricing method applied. Documentation is generally required unless the taxpayer’s prior-year gross income is below 10 billion guarantees, except when dealing with low or no-tax jurisdictions. General Resolution No. 115/2022 further determines the minimum content and mandates annual submission within seven months after the fiscal year-end.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
In Paraguay, advance rulings or pricing agreements are not available.
Penalties
Paraguay law does not provide specific penalties related to transfer pricing.
Taxation at a Glance
The Paraguayan tax regime is composed of (i) income taxes, which include corporate income tax, nonresident income tax, a tax on dividends and profits, and personal income tax;(ii) asset taxes, which include real estate tax, additional tax on land without use, and additional tax on extensive real estate; and (iii) consumption taxes, which include value added tax (VAT) and selective consumption tax, which is a type of excise tax on imports of certain goods.
Its official currency is the Paraguayan guarani, and the official name of the tax authority is called Dirección Nacional de Ingresos Tributarios.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 10% |
VAT | 5%, 10% |
Withholding tax on dividends to non-residents | 15% |
Withholding tax on interest to non-residents | 15% |
Withholding tax on royalties to non-residents | 15% |
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