Paraguay introduces transfer pricing rules

By Carlos Subero, BaseFirma, Senior consultant. Colombia

Paraguay, on September 13, enacted special regulations providing for the transfer pricing analysis of intercompany transactions. The new provisions, contained in Chapter III of the law on Modernization and Simplification of the National Tax System, will be officially published in the next few days.

While Paraguay has been an OECD member country since 2017, the new provisions are the first laws providing for the application of transfer pricing rules.

This new law provides basic transfer pricing rules, including provisions establishing the independence principle and rules on comparability for transactions carried out between related parties.

The basic aspects established in this new law do not differ from the current edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. As such, Paraguay’s new transfer pricing standards will be consistent with laws in other Latin American countries.

Under the new Paraguay transfer pricing law, transactions between related parties are deemed to be those transactions carried out with persons or groups of persons with direct or indirect participation over the administration, control, or capital of another, in a percentage exceeding 50% of the capital stock with the right to vote.

As in other countries of the region, related parties are those persons domiciled in tax havens and those considered permanent establishments pursuant to law.

The term “person” includes individuals, permanent establishments of residents abroad, trusts or any other similar entity or legal entity, national or foreign, regardless of the manner it is being named.

The transfer pricing methods established in the OECD transfer pricing guidelines are adopted. The rules specifically mention that commodities must adjust to the prices set by the market.

The methods of transfer pricing analysis must be explained in a technical report prepared by taxpayers whose gross income in the previous year exceeded ten thousand million Guarani (₲ 10,000,000,000, approximately USD 1.5 million), and those who engage in transactions with entities domiciled in tax havens.

— Carlos Subero is a Senior consultant at BaseFirma, Colombia.

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