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Paraguay Establishes Tax Haven List and Introduces Certain Transfer Pricing Amendments — Orbitax Tax News & Alerts

Paraguay's tax authority (SET) has published General Resolution No. 118/2022. The General Resolution establishes the list of jurisdictions considered as a low or no-tax jurisdiction (tax haven) according to the revised conditions recently introduced by Decree No. 7402-2022. This list includes 111 jurisdictions, although there are several duplicates resulting in a total of 106 jurisdictions with the duplicates removed:

Afghanistan, Alderney, Algeria, Angola, Ascension Island, Bangladesh, Belarus, Benin, Bhutan, Bonaire Island, Brecqhou, Burkina Faso, Burundi, Cambodia, Campione d'Italia (Italy), Central African Republic, Chad, Christmas Island, Cocos Island, Comoros, Cuba, Democratic Republic of the Congo, Djibouti (duplicate), East Timor, Egypt, Equatorial Guinea, Eritrea, Eswatini (Swaziland), Ethiopia, Fiji, French Polynesia, Gabon, Gambia, Guam, Guinea, Guinea-Bissau, Guyana (duplicate), Haiti, Honduras, Iran, Iraq, Sark Island, Ivory Coast, Kenya, Kiribati (duplicate), Kyrgyzstan, Labuan (Malaysia), Laos, Lesotho, Libya, Madagascar, Malawi, Mali, Micronesia, Mozambique, Myanmar (Burma) (duplicate), Nepal, Nicaragua, Niger, Norfolk Island, Oman, Palau (duplicate), Papua New Guinea, Philippines, Pitcairn Islands, Puerto Rico, Qeshm (Iran), Republic of the Congo, Rwanda, Saba Island, Saint Eustace, Saint Pierre and Miquelon, Santa Elena Island, São Tomé and Príncipe, Sierra Leone, Solomon Islands, Somalia, South Sudan, Sri Lanka, Sudan, Suriname, Svalbard, Syria, Tajikistan, Tanzania, Togo, Tokelau, Tonga, Trinidad and Tobago, Tristan da Cunha, Tuvalu, U.S. - Alaska, U.S. - Delaware, U.S. - Florida, U.S. - New Jersey, U.S. - Nevada, U.S. - South Dakota, U.S. - Texas, U.S. - Wyoming, U.S. Virgin Islands, Uzbekistan, Vatican City, Vietnam, Yemen, Zambia, and Zimbabwe.

General Resolution No. 118/2022 also provides that the amendments made by Decree No. 7402/2022 regarding the tax haven conditions apply in relation to the technical transfer pricing study (Estudio Técnico de Precios de Transferencia or ETPT) corresponding to the 2021 and subsequent fiscal years. However, it is further provided that the list of tax haven jurisdictions will not be taken into consideration in the analysis of the operations in the ETPT corresponding to the fiscal year 2021.

In addition to establishing the tax haven list and related provisions, General Resolution No. 118/2022 also expands the scope of operations under Article 6 of General Resolution No. 115/2022 that are excluded from the transfer pricing analysis and not included in the ETPT. The expanded list of excluded operations includes:

  • Forestry activities and the disposal of urban and rural real estate that are part of the fixed assets of the corporate income tax (IRE) taxpayer, when the net income from Paraguayan sources is determined by applying the optional presumed tax base (30% of income) (unchanged);
  • International operations, when the net income from Paraguayan sources is determined by applying the optional presumed tax base (30% of income), which includes container leasing, international transport operations, and certain others (unchanged);
  • Capital contributions in cash, as long as they are in the legal currency of Paraguay (unchanged);
  • Reclassifications or offsets of accounting accounts related to assets, liabilities, or equity, as long as these do not affect or may affect the income statement or the determination of the profitability of the analyzed entity (unchanged);
  • Cash payment of capital gains (dividends) or liabilities, as long as these are made in the legal currency of Paraguay (unchanged);
  • Operations that have been carried out with companies or organizations and entities of the State (unchanged);
  • Operations of the IRE taxpayer with related parties resident in Paraguay, when for both parties, said operations are not exempt from IRE or not covered by IRE (unchanged);
  • Operations involving donations or charitable acts between related parties residing abroad or in Paraguay (new addition);
  • Operations of an IRE taxpayer with a related party that is a personal income tax (IRP) taxpayer in Paraguay, provided that said operations are covered by IRP (new addition);
  • Operations of an IRE taxpayer that has an approved maquila program, with respect to the part of their income taxed by the single tax of 1% (new addition); and
  • Operations of an IRE taxpayer that is a Free Zone user resident in Paraguay, with respect to the part of their income from exports to related parties abroad that is subject to the Free Zone Tax of 0.5% (new addition).

It is further clarified that when a taxpayer otherwise obliged to present the ETPT exclusively carries out one or more of the operations listed above with its related parties residing abroad or in Paraguay, it will not be subject to the 957-ETPT obligation registration requirement in the corresponding fiscal year.

Lastly, a few additional clarifications are provided by General Resolution No. 118/2022 in relation to the above exclusions and the gross income threshold for the ETPT requirement. This includes that where an IRE taxpayer has operations with related parties subject to the single tax of 1% under an approved maquila program and/or the Free Zone Tax of 0.5%, the portion of gross income subject to the respective taxes must be included in total gross income for determining whether the PYG 10 billion threshold for the ETPT requirement is exceeded.