PARAGUAY Law and Practice Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
The legislation references the standard OECD meth - ods (comparable uncontrolled price, resale price, cost-plus, transactional net margin and profit split), yet it does not explicitly incorporate the full suite of OECD guidance. Additionally, Paraguay does not offer an APA system, nor does it have a long-standing track record of audits or judicial precedents interpreting complex transac - tions. Consequently, while the formal rules point to OECD benchmarks, actual enforcement is at an early stage and can sometimes yield inconsistent or highly man - ual review processes when local examiners encounter intricate multinational structures. In addition, Paraguay applies a method like the “sixth method” for commodity transactions, which can extend beyond purely related-party dealings. If com - modities such as soy or other grains are exported to purchasers situated in a low-tax or no-tax jurisdiction, the local tax authority may require that the prices be benchmarked against official commodity exchange listings or other internationally recognised indices at the date of shipment. While this approach primarily addresses transfer pric - ing concerns among affiliated entities, it can also be triggered for sales to non-related parties if certain con - ditions are met, reflecting a broader policy to discour - age under-invoicing and ensure export prices align with arm’s length values. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures Bearing in mind that Paraguay effectively adopted transfer pricing rules in 2021, the local tax authorities are gradually setting their focus on cross-border trans - actions, although Paraguay’s transfer pricing regime remains comparatively new and lightly enforced com - pared to other jurisdictions. If the authorities obtain fresh data or suspect underre - porting, they may initiate or reopen enquiries for prior years, but formal reassessments remain limited, partly because there is still a relatively limited track record of in-depth transfer pricing audits.
Mutual agreement procedures (MAPs) have not been used in practice in Paraguay to date, largely due to the limited scope of its double taxation treaty network. There are no publicly known MAP cases or precedents involving the Paraguayan tax authorities, and tax disputes have traditionally been addressed through domestic administrative or judicial mechanisms. With new treaties – notably the treaty with Spain – enter - ing into force and the gradual incorporation of OECD- aligned provisions, MAP procedures may become more relevant in the future, although their practical application in Paraguay remains untested. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments There is no formal, automatic mechanism for com - pensating adjustments when a transfer pricing claim is settled in Paraguay (to the best of the firm’s knowl - edge, there have been none so far). Once an adjustment is agreed upon or imposed, the revised taxable base for that period is generally accepted as final. If it later emerges that an overpay - ment has occurred as a result of the adjustment, any refund or credit should be determined on a case‐by‐ case basis through a reassessment or mutual agree - ment with the tax authority. In other words, while individual cases may result in some corrective measures, Paraguay does not pro - vide a standardised compensation adjustment pro - cess for settling transfer pricing disputes. 5.2 Local Branches and Local Subsidiaries In Paraguay, local branches of non-local corporations are taxed in the same way as local subsidiaries. Both are subject to IRE on Paraguay-sourced income at the same nominal rate, and the tax calculation, deduc - tions and filing obligations are applied identically. While a branch is legally an extension of its foreign parent and a subsidiary is a separate legal entity, there is no distinction between the two for tax purposes.
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