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Paraguay Looking to Introduce Transfer Pricing Rules — Orbitax Tax News & Alerts

Paraguay's executive branch on 9 May presented to the National Congress a draft law that, among other things, would introduce the country’s first transfer pricing regime.

Under the draft Law, the prices and conditions established in related-party transactions with domestic or foreign entities must be consistent with those in transactions between independent parties in comparable situations. The tax administration would have the authority to adjust the price and revise the parties’ taxable income and deductions if it finds that a transaction does not meet that criterion.

Transactions would be considered comparable if there are no differences that significantly affect the price or profit margin as determined through the applicable transfer pricing method or any differences could be eliminated through reasonable adjustments. When considering the comparability of transactions, the following items would be considered:

  • the characteristics of the operations:
  • the functions performed, the assets used, and the risks assumed;
  • the contractual terms;
  • the economic circumstances; and
  • business strategies.

Acceptable transfer pricing methods include:

  • the comparable uncontrolled price method;
  • the resale price method;
  • the cost-plus method;
  • the profit-split method; and
  • the transactional net margin method.

Taxpayers undertaking related-party transactions would be required to perform and keep a technical study with relevant supporting documentation showing that the prices established in the transactions are proportionate to those that would have been established between independent parties in comparable operations. The documentation should include, at a minimum, the following information:

  • information about the related-party transactions and their amounts;
  • the identity of the related persons involved in the transactions (names, domiciles, and fiscal residences), as well as the supporting documentation for the direct and indirect participation between the related parties;
  • information related to the functions performed, assets used, and risks assumed by the taxpayer for each type of operation; and
  • the selected transfer pricing method, including comparable operations or companies for each type of operation.

Taxpayers whose gross income in the previous fiscal year did not exceed PYG 10 billion (approx. USD 1.5 million) would be exempt from the documentation requirement.

The tax administration would issue separate regulations detailing and clarifying the rules described above, including other required information in the documentation accompanying the technical study.