PARAGUAY Law and Practice Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
5.3 Spin-Off Followed by a Business Combination Spin-offs followed immediately by a business combination are possible in Paraguay. The key requirements include ensuring compliance with tax regulations (keeping the assets at book value) and corporate law, as well as obtaining shareholder and board approvals. This is the most common way in which spin-offs are uti- lised. 5.4 Timing and Tax Authority Ruling The typical timeline for a spin-off in Paraguay depends on the transaction’s complexity, the shareholders’ agreement, the kind of assets involved and regulatory approval (for some industries), but it generally takes four to six months. A tax ruling from the Paraguayan tax authority is not required, but some opt for it. In such a case, obtaining it can take three to six months. 6. Acquisitions of Public (Exchange-Listed) Technology Companies 6.1 Stakebuilding It is not customary in Paraguay to acquire a stake in a public company before making an offer. The reporting threshold for acquiring an interest in a public company is 10%. Regarding the disclosure, unless it could be considered a “material event”, the company has three business days to inform the relevant authorities (the Securities Superintendency ( Superintendencia de Valores SIV), equivalent to the American SEC, and the Asunción stock exchange ( Bolsa de Valores de Asunción BVA)). Generally, the acquisition of shares by a third party should not be considered a material event.
nology sector. This trend is driven by the need for efficient capital and the strategic separation of business units, which is attracting investment in specific technology segments. 5.2 Tax Consequences In Paraguay, spin-offs can potentially be struc- tured as tax-neutral transactions at the corpo- rate level, subject to compliance with specific legal and tax requirements. At the shareholder level, a spin-off presents an opportunity to significantly reduce the burden of a liquidity event. Selling shares of a new local entity could result in a maximum of 4.5% tax on the gross selling price, or even zero tax if the spin-off is strategically arranged with a foreign entity as the shareholder of the target company. A spin-off may qualify as tax-neutral at the cor- porate level if executed at book value and in line with other relevant corporate restructuring pro- visions. If such conditions are met, the transfer of assets during the spin-off should not trigger immediate tax liabilities, such as the CIT or the withholding tax (WHT) on dividends ( impuesto a los dividendos y utilidades IDU). It is important to note that as of the time of writ- ing, there are no specific provisions in place regarding the continuity of ownership, business or purpose in relation to spin-offs in Paraguay. Key requirements for achieving tax neutrality in a spin-off include: • execution of the spin-off at book value, with no revaluation of assets; and • adherence to corporate restructuring regula- tions.
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