PARAGUAY Trends and Developments Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
When structuring a merger or spin-off, companies may choose between: • continuity, maintaining fiscal book values and deferring taxation; or • realisation, revaluing assets at market value and paying IRE on the resulting gain. This elective model grants flexibility in designing reor- ganisations. Continuity ensures accounting and fiscal coherence, while realisation allows alignment of tax bases with economic reality, at an immediate fiscal cost. Unlike other jurisdictions that condition neutrality on business purpose tests or shareholder continuity over a prescribed post-merger period, Paraguay focus- es solely on whether fiscal continuity or realisation occurs at the transaction date. This simplicity allows practitioners to tailor structures to the economic intent of each deal, provided they adhere to good faith prin- ciples and are subject to post-transaction audit. Ultimately, the choice between continuity and realisa- tion has direct implications for asset valuation, risk allocation and deal pricing. Formal compliance and fiscal risk Paraguay’s reorganisation regime stands out for its conceptual clarity and operational simplicity, provid- ing predictability and efficiency in practice. Neutrality applies only when the transaction takes a legally rec- ognised form, merger, spin-off, absorption or trans- formation, duly registered under civil and commercial law. Transfers of assets or liabilities outside this framework, such as intra-group transfers without formal reorgani- sation, are treated as taxable disposals subject to IRE, VAT and potentially IDU, and eventually INR if non- resident parties are involved. Asset or equity contribu- tions, however, remain tax-neutral. This design, centred on legal form and fiscal continu- ity, has proven effective for most local and intra-group transactions. Yet, its generality poses challenges for more complex deals involving purchase price alloca- tion (PPA), intangible revaluation or regional consolida-
tion. The absence of detailed guidance on accounting alignment or loss continuity requires careful planning and technical justification. Nevertheless, Paraguay offers tangible advantages. Loss carry-forwards may be applied for up to five years and, in practice, can be utilised by succes- sor entities in mergers or acquisitions, provided that patrimonial and accounting continuity are ensured – a pragmatic approach compared with restrictive regimes elsewhere. In short, the Paraguayan system combines formal cer- tainty with practical applicability, forming a solid base In Paraguay, fiscal neutrality in reorganisations extends beyond income tax to include indirect taxation and compliance. Mergers, spin-offs, absorptions and transformations are treated as internal asset transfers rather than commercial transactions, and thus remain outside the scope of VAT and IDU, provided no actual profit distribution occurs. Conversely, transactions structured outside these legal forms, for example, direct asset or business sales, are fully taxable, potentially triggering VAT, IRE and subsequent IDU upon the distribution of profits. The tax authority has reaffirmed this approach. In the 2023 binding ruling on corporate spin-offs, the DNIT confirmed that such reorganisations are exempt from VAT and do not trigger IDU unless an actual gain is realised. Similarly, in 2025, the DNIT extended this principle to electronic compliance, confirming that the absorbing entity in a merger may issue debit or credit notes on behalf of the absorbed entity under the electronic invoicing system ( sistema de factura- ción electrónica SIFEN), ensuring accounting and fis- cal traceability. This reflects a coherent and pragmatic application of neutrality across both fiscal and documentary dimen- sions. In practice, it requires careful co-ordination of balance approval, transaction timing and profit distri- bution to avoid unintended taxable events, alongside for modern corporate restructuring. VAT, dividend tax and indirect effects
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