Transfer Pricing regulations were recently introduced in Paraguay in the Tax Reform (Law 6.380) and are in force for fiscal years starting on 1 January 2021. Therefore, no filings nor audits have yet to take place so far.
More specific regulations for the implementation of the regime are still pending and are expected to be released shortly.
- Paraguay transfer pricing (TP) legislation is in the Tax Reform Law (Law 6380), Book I (Income taxation), Title I (Corporate Income Tax), Chapter III (Special valuation rules), and is based on the arm’s length principle following, in general, the OECD Guidelines, with some differences.
- The TP rules apply to Paraguay Corporate Income Tax taxpayers, including local branches of overseas companies and there is a self-assessment regime, ie the onus is on the taxpayer to confirm its transfer pricing meets the standard or to adjust its tax return accordingly.
- The regime is a 'one-way street', ie upwards-only adjustments are permitted, and offsets between years and entities is not accepted.
- Transactions subject to the regime are those performed by taxpayers with related parties resident abroad, or local related parties when one of the participants is exempted or not taxed by Income Tax for the operation.
- Paraguayan TP legislation defines relationships between parties including the concept of a functional relationship, which is however still pending to be more precisely defined by an upcoming regulatory decree. Moreover, taxpayers undertaking operations with entities residing abroad in countries with low or nil taxation, including free trade zones or tolling manufacturers will also be subject to TP regulations for those transactions. The list of countries or jurisdictions considered of low or nil taxation is still pending to be published by the government.
- Taxpayers subject to this regime will be enforced to prepare annual documentation, except in cases in which revenues of the prior fiscal year did not reach G 10.000.000.000 (approximately USD 1.5 million). This exemption does not apply to taxpayers with transactions performed with free trade zones users, tolling manufacturers or entities residing in low or nil taxation countries.
- The Tax Office will state the mechanisms for the filing of documentation and will prepare a registry of professionals habilitated to perform and issue TP reports. Both of these matters are still pending.