PARAGUAY Law and Practice Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
work to ensure that intercompany transactions reflect genuine economic activity. These changes, incorporated through recent legisla - tive reforms such as Law No 6380/19, represent sig - nificant steps towards aligning the tax system with international standards. However, while these meas - ures address key areas of BEPS Action 4 and related recommendations, full alignment with the broader BEPS agenda, especially in terms of Pillars One and Two (BEPS 2.0), remains a work in progress. 9.2 Government Policy and Objectives Approach The Paraguayan government has shown a balanced approach towards BEPS measures. On the one hand, it is committed to modernising its tax system by implementing stronger transfer pricing rules, thin capitalisation limits, and other measures in line with international standards. On the other hand, Paraguay seeks to maintain a competitive environment that con - tinues to attract foreign investment. Regarding Pillar One, which deals with reallocat - ing taxing rights for large, often digital, multinational enterprises, it is unclear whether significant changes will directly affect Paraguay due to its smaller digital economy and traditional business structure. However, any global changes could still have an indirect impact if large multinational enterprises adjust their business models. As for Pillar Two, which establishes a global minimum tax, Paraguay’s current corporate tax rate of 10% is rather low compared with other countries. If a global minimum tax is enforced, an open ques - tion is whether Paraguay will adjust its tax frame - work, given that the government has stated it will not increase tax rates. At this initial stage, it is likely that firms subject to Pillar Two will consider Paraguay’s 10% rate while determining how to adjust their global tax base, particularly in scenarios where tax is paid without dividend distributions. The most pronounced impact is likely to be on multi - national groups operating in Paraguay, particularly in sectors such as digital services, multinational enter -
prises involved in exporting, and finance, where profit shifting has been more common. 9.3 International Tax International tax issues have not traditionally been at the forefront of public debate in Paraguay, especially compared to larger economies. However, interest in global tax matters is gradually increasing. In recent years, legislative reforms and alignment with international standards have increased awareness among policymakers and in the business community. This growing profile is influencing the way Paraguay implements BEPS recommendations, particularly in areas like transfer pricing and thin capitalisation, and exchange of information. Although public debate remains relatively muted, there is a clear governmental intention to modernise the tax system without undermining its competitive low-tax environment. Consequently, while BEPS measures will likely be adopted, their implementation is expected to be gradual and pragmatic, carefully balancing global compliance with the need to attract and retain foreign investment. 9.4 Competitive Tax Policy Objectives Paraguay’s government has long maintained a com - petitive tax policy, exemplified by its low statutory corporate tax rate and investor-friendly environment. At the same time, the global push for international standards compliance creates pressure to ensure that profits are reported accurately and that the tax base is not eroded by artificial arrangements. To balance these priorities, the government is expect - ed to implement said standards gradually, enhanc - ing transfer pricing documentation, reinforcing thin capitalisation rules and tightening substance require - ments, without significantly raising the effective tax rates that have historically attracted investment. This careful calibration may involve the use of tran - sitional measures or the implementation of safe har - bours, which Paraguay currently lacks but should consider adopting. These mechanisms would help taxpayers adjust to the new compliance standards without facing abrupt tax increases. The government’s
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