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As a Paraguayan member of the prestigious Employment Law Alliance (ELA), Vouga Abogados is pleased to invite all its clients and colleagues to participate free of charge in the Webinar “Protection of Trade Secrets” to be held on May 21, 2019.

ELA presents top attorneys for a roundtable discussion on topics including:

• Identification of effective measures and remedies to enforce trade secrets under European law.
• Measures to protect the company's interests through confidentiality clauses, restrictive covenants and more.

Last May 2, the “Trust Services for Electronic Transactions” bill was presented, which plans to harmonize Paraguayan regulation with other standards such as Regulation (EU) No. 910/2014 of the European Parliament and of the Council. It is a project that intends to regulate issues such as electronic identification, certified electronic delivery services, website authentication, electronic seals, electronic transmissible documents, among others.

The project was submitted by the Ministry of Industry and Commerce, as enforcement authority of the Digital Signature Law and within the framework of the objectives of the “Paraguay Digital” project. If approved, Law No. 4017/2010 “On the legal validity of electronic signatures, digital signatures, data messages and electronic files” will be repealed.

On the other hand, the head of the Ministry of Public Health and Social Welfare also expressed his support for technology. In the health field, it would represent an improvement in the care and administration sectors. In fact, he stated that an electronic signature would soon be available for the use of an electronic vaccination certificate.

All these changes will require a regulatory framework to carry forward the implementation of technology towards the goal of achieving “e-Government”.

Sources: Ministry of Industry and Commerce and Ministry of Public Health and Social Welfare.

Since August of last year, more than 250 companies have been inspected, of which 35 have already been investigated. With the new controls, the Ministry of Labor, Employment and Social Security (MTESS) has already collected more than 4 billion guaraníes in fines for non-compliance with labor regulations.

The purpose of these inspections is to strengthen the control of compliance with standards, particularly with respect to working conditions, occupational health and safety of workers, as well as the prevention of occupational accidents and diseases. According to statistics, the sectors with the highest number of infractions are cleaning, security, transportation and lodging.

The measures have reached a total of 3,196 workers, and 243 workers have also been migrated to the Instituto de Previsión Social (IPS) insurance. The number will continue to increase, as a large number of companies are still in the middle of the summary process.

This increase in inspections reinforces the importance for companies to be in compliance with labor regulations in order to avoid being subject to sanctions by the MTESS.

For more information about the correct compliance with labor standards, please do not hesitate to contact Perla Alderete (palderete@vouga.com.py) and Walter David Vera (wvera@vouga.com.py).

Source: Paraguayan Information Agency

Rodrigo Fernández, an associate of Vouga Abogados, participated as a speaker in a conference organized by the American Bar Association, Section of Labor & Employment Law in Buenos Aires, Argentina, from May 5 to 9. The title of the panel was ”Critical Issues and Trends in Labor and Employment Law in Latin America“. The panelists provided an overview and perspectives on the critical issues and current trends in Latin American labor law, as well as their implications for both employers and employees.

In this regard, Rodrigo Fernández spoke about the current situation of Paraguayan labor law and the progress that has been made in recent years with respect to:

• New labor regulations.
• Outsourcing of services.
• Non-competition clauses for former employees.

The same panel also included professionals from other countries who presented the current situation in their respective jurisdictions. They were Álvaro Aguilar (of Aguilar Castillo Love, San José, Costa Rica), Carolina Camacho (of Posse Herrera & Ruiz, Bogotá, Colombia) and Juan Carlos Pró-Risquez (of Dentons, Caracas, Venezuela). The moderator, Oscar De la Vega (of De la Vega & Martínez Rojas, Mexico City, Mexico), also took the opportunity to make some brief comments on the current labor reform in Mexico.

This talk was given in the framework of the “International Labor and Employment Law Committee - Midyear Meeting”, which was attended by 130 participants from the most diverse jurisdictions.

If you wish to know more about our practice in the area of labor law, please contact Perla Alderete (palderete@vouga.com.py), Walter David Vera (wvera@vouga.com.py) and Rodrigo Fernandez (rfernandez@vouga.com.py).

Some 250 people have been automatically migrated to the social security system since the doubling of inspections implemented by the Vice-Ministry of Labor since August of last year. In this way, the government seeks to formalize the situation of workers.

This work is being coordinated with the Instituto de Previsión Social (IPS) so that employees will have health insurance and also enter the retirement system.

Today, there are some 280,000 employees outside the social security system, not counting other labor law violations, such as non-payment of overtime, night hours and other items.

For these cases, the Ministry of Labor, Employment and Social Security (MTESS) has an individual conflict mediation department where workers can present their case. Here employers are summoned to reach an agreement and regularize the situation. If an agreement cannot be reached, then audits are carried out and a fine is applied if applicable. The MTESS already has about US$ 8 million in fines to companies in court cases.

For more information about the formalization of employment situations, please do not hesitate to contact Walter David Vera (wvera@vouga.com.py) and Daniela Leguizamon (dleguizamon@vouga.com.py).

Source: Paraguayan Information Agency

The fact that Paraguay has an enviable legal framework for arbitration is certainly not in question. Indeed, in Paraguay (1) arbitration is expressly recognized in the National Constitution[1](2) it has a modern arbitration law, since Law 1879/02 on Arbitration and Mediation (“Arbitration Law”) reproduces quasi-literally the UNCITRAL Model Arbitration Law[2](3) is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the ICSID Convention[3].

On the other hand, the jurisprudence of the judicial bodies in charge of deciding on the merits of an appeal for annulment against arbitral awards has been very favorable to arbitration to date. Indeed, the Courts of Appeal in Civil and Commercial Matters (the “Court of Appeal”) have uniformly held that the appeal for annulment only proceeds in the event of the grounds for annulment set forth in the Arbitration Law. However, this changed with the Agreement and Judgment No. 111 dated December 29, 2016 issued by the Court of Appeals, 1st Chamber of the Capital. The same upheld the declaration of nullity of an arbitration award based on grounds other than those established by the Arbitration Law.

The losing party filed an action of unconstitutionality against the aforementioned ruling, requesting its nullity. In a decision that can be considered a leading case for Paraguayan jurisprudence, the Constitutional Chamber of the Supreme Court of Justice declared the nullity of the decision issued by the Court of Appeals, arguing that it was arbitrary, since the Court had exceeded its jurisdictional powers by declaring the nullity of the arbitration award based on grounds other than those mentioned in the Arbitration Law.

The arbitration proceeding dealt with the alleged breach by the defendant of a purchase and sale agreement, since the defendant had failed to make the required payments under the agreement. Consequently, the plaintiff requested (i) the termination of the contract; (ii) the payment of damages; (iii) the restitution of the property. The Arbitral Tribunal granted the plaintiff's claims.

The Respondent filed a nullity action against the arbitration award. It argued that the Arbitral Tribunal had violated constitutional principles, as well as the provisions of the Paraguayan Civil Code. With respect to the latter, it claimed to have demonstrated the payment of the obligation.

The Court of Appeals resolved to declare the nullity of the arbitration award. Two judges voted in the sense of declaring the nullity while Judge Arnaldo Martínez Prieto voted in the sense of rejecting the nullity of the arbitration award.

As to the grounds for the declaration of nullity, although the Court of Appeals acknowledged that the appellant's arguments dealt with the merits of the dispute, it pointed out that it was appropriate to analyze the nullity action ex officio, since the appeal alluded to matters of public policy.

In this regard, the Court pointed out that the appeal for annulment grants the court the power to control that the procedural guarantees and rights of the parties are respected. In the specific case, it indicated that the arbitration award suffered from procedural defects.

Specifically, it stated that the arbitration award suffered from the defect of inconsistency, since it had not fully declared the rights of the parties by omitting to rule on one of the defendants. In fact, the Court of Appeal indicated that the Arbitral Tribunal did not rule with respect to one of the co-defendants, since the operative part of the arbitration award states “to condemn the defendant”, so that the Court of Appeal understood that such condemnation referred only to the main defendant -Cárnicas Villa Cuenca S.A.- and not to the subsidiary defendant -PABENSA-. The Court of Appeals considered that this constituted a violation of the principle of congruence (citrapetita ruling). Finally, the Court of Appeals questioned the interpretation that the Arbitral Tribunal made with respect to one of the clauses of the contract, specifically the fact that it considered that the contract in question did not include a penalty clause.

The dissenting vote of Judge Arnaldo Martínez Prieto was emphatically against the declaration of nullity. He pointed out that the only way to challenge arbitral awards is the appeal for nullity as provided in the Arbitration Law. He indicated that this remedy should not be confused with the appeal for annulment legislated in the Code of Civil Procedure, since the appeal for annulment against arbitral awards has an autonomous regulation. He emphasized that it is only applicable if any of the grounds for nullity set forth in the Arbitration Law are present.

Analyzing the arguments of the party that filed the appeal for nullity, the aforementioned judge expressed that the errors pointed out by the same have to do with the merits of the controversy, and that none of the grounds for nullity established in the Arbitration Law have been configured. Consequently, he voted to reject the appeal for nullity.

The plaintiff filed an action of unconstitutionality against the Agreement and Judgment issued by the Court of Appeals. The Constitutional Chamber of the Supreme Court of Justice granted said action and, consequently, declared the nullity of the aforementioned ruling.

Judge Miryam Peña was the preopinent. She stated that the decision of the Court of Appeals was arbitrary, since it violated the constitutional and legal duty of the jurisdictional bodies to base their decisions on the Constitution and the Law. It indicated that in matters of arbitration the principles of autonomy and the non-appealability of the arbitration award govern, with the purpose of avoiding unnecessary and unjustified intrusions in the ordinary justice system that conspire against its effectiveness as an alternative method of conflict resolution. He pointed out that in line with these principles, the Arbitration Law provides a limited framework for challenging arbitral awards, which is limited only to the declaration of nullity, but only in the event of the grounds strictly enumerated in the law.

Likewise, he remarked that the Court of Appeals is not allowed to rule on the merits of the dispute. He concluded by stating that the fact that the Court of Appeals had declared the nullity, departing from the grounds for nullity set forth in the Arbitration Law, constituted an excess in the exercise of its jurisdictional power, and therefore voted to annul the decision of the Court of Appeals for being arbitrary.

Judge Bareiro de Módica, although she also voted in favor of declaring the decision of the Court of Appeals null and void, made her own reasoning. She pointed out that the disagreement of the respondent with the decision of the Arbitral Tribunal is not a valid argument to declare the nullity of the award, citing a decision of the First Chamber Court of Appeals, which emphatically states that the declaration of nullity of an arbitral award only proceeds if any of the grounds for nullity contemplated in the Arbitration Law have been configured. Consequently, it also concluded that the Court of Appeals exceeded its jurisdictional powers and, consequently, ruled in favor of the nullity of the decision issued by said Court.

This decision of the Constitutional Chamber of the Supreme Court of Justice sets a clear precedent in favor of arbitration. It emphatically states that the appeal for annulment (i) is not appropriate to attack the decision of the arbitrators as to the merits of the dispute; (ii) only proceeds in the event of any of the causes established by the Arbitration Law for the declaration of nullity of the arbitration award. The ruling undoubtedly consolidates the use of arbitration in the domestic sphere and, why not, invites to think that in the future Paraguay may be considered as a seat of international arbitration. As the saying goes, “a journey of a thousand miles begins with the first step”. Paraguay has taken the first step.

If you would like to know more about our International Arbitration practice, please contact Eusebio López (elopez@vouga.com.py) or Mirtha Dos Santos (mdsantos@vouga.com.py).

[1] Art. 248: “...In no case may members of the other branches of government or other officials assume judicial powers that are not expressly established in this Constitution, nor revive expired proceedings, nor paralyze existing ones, nor intervene in any way in trials. Acts of this nature shall be null and void. All this without prejudice to arbitral decisions in the field of private law, with the modalities determined by law to ensure the right of defense and equitable solutions.” (emphasis added)
[2] United Nations Commission on International Trade Law.
[3] International Center for Settlement of Investment Disputes.

The apprenticeship contract is designed to allow young people between 16 and 25 years of age to be trained in a company, in exchange for a salary for 6 hours of work. The Ministry of Labor, Employment and Social Security (MTESS) established a new procedure for the registration of apprentices, with the intention of encouraging their hiring by small and medium-sized companies.

This contract allows the apprentice to enter the workplace and receive training by the employer itself or in an institution under the employer's responsibility, or under the dual apprenticeship regime. According to the code, these young people must earn at least 60% of the minimum wage, in addition to being registered with the Social Security Institute (IPS) as contributors. There are currently some 2,400 registered apprentices.

A new resolution of the MTESS establishes the steps for the registration of apprentices, providing that the employer must enter the MTESS website and upload the data of the young person in the online registration system (Registro Obrero Patronal). Then, the application must be submitted to the Labor Directorate with the list of apprentices, in triplicate and double-sided with original signatures of both parties, with the schedule of activities foreseen for the apprentice and attach copies of the identity card of the apprentice and the employer.

In addition, in the case of adolescent apprentices (young people between 16 and 18 years of age), the company must present proof in the Adolescent Worker Registry issued by the nearest Municipal Council for the Rights of Children and Adolescents (CODENI).

Finally, the documents submitted will be forwarded to the Directorate of Labor Employer Registration for the issuance of a resolution for registration within 48 hours. After this step, the MTESS is responsible for notifying the IPS of those hired as registered apprentices.

For more information about the new apprenticeship hiring regime, please do not hesitate to contact Perla Alderete (palderete@vouga.com.py), Walter David Vera (wvera@vouga.com.py) or Daniela Leguizamon (dleguizamon@vouga.com.py)

Source: Paraguayan Information Agency

The first quarter of 2019 reported a total of USD 146.9 million in investments within the incentive regimes (with capital of national and foreign origin). This investment regime benefits companies located in eight departments throughout the country and will have a high impact on the national economy.

During this quarter, 31 projects were approved, of which:

- 81% belong to the manufacturing sector,

- 7% belong to the agricultural sector,

- 6% corresponds to the services and mining and quarrying sector.

The Ministry of Finance is interested in promoting private investments to support the development of the industrial and productive sector, generate more jobs and formalize the economy.

To access these incentives, companies can start their procedures at the MIC's Single Window for Exports (VUE) portal, www.vue.org.py/, the company must comply with the formal requirements established in Law 60/90. On the other hand, the companies of the maquiladora industry must inform themselves of the requirements by contacting the Executive Secretariat of the National Council of the Maquiladora Export Industry (under the MIC).

For more information on how to access the benefits of the incentive schemes, please do not hesitate to contact Rodolfo G. Vouga (rgvouga@vouga.com.py) or Andrés Vera (avera@vouga.com.py).

Source: Paraguayan Information Agency

Within the framework of the Paraguayan State's Strategic Plan to combat Money Laundering, Financing of Terrorism and the Proliferation of Weapons of Mass Destruction, approved by Decree No. 11,200/2013, and in order to bring Paraguayan regulation in this matter in line with the international standards established by the 40 Recommendations of the Financial Action Task Force (“FATF”), the Secretariat for the Prevention of Money or Asset Laundering (“SEPRELAD”) issued on March 15, 2019, Resolution No. 70, approving the “Regulations for the Prevention of Money Laundering and Financing of Terrorism based on a Risk Management System for Banks and Financial Institutions supervised by the Superintendency of Banks of the Central Bank of Paraguay” (the “Resolution No. 70”) and Resolution No. 71 approving the “Regulations for the Prevention of Money Laundering and Financing of Terrorism based on a Risk Management System for Regulated Entities supervised by the Superintendence of Insurance of the Central Bank of Paraguay” (the “Resolution No. 71” and jointly with Resolution No. 70, the “Resolutions”).

Although the Resolutions are addressed to different regulated entities, on the one hand Banks and Finance Companies (in the case of Resolution No. 70) and, on the other hand, Insurance Companies (in the case of Resolution No. 71) (the Banks, Finance Companies and Insurance Companies, jointly the “Regulated Entities”); the object of the Resolutions is the same and will affect the current processes and controls carried out by the Regulated Entities regarding Money Laundering and Financing of Terrorism, which must be adapted to these new Resolutions.

The regulations approved by both Resolutions establish the structure and responsibilities for the different levels of authorities of the Regulated Entities (responsibility of the board of directors, management, insurance agents and brokers, compliance officer, committees, etc.) and the obligations of the Regulated Entities in the matter and the guidelines to be followed by the internal rules of the Regulated Entities (such as the prevention manual and the code of conduct).

The Resolutions specify that the Regulated Entities must develop a risk rating system to evaluate the risk of their clients. Likewise, the Resolutions provide for the obligation to prepare reports related to the evaluation of the level of risk exposure of the new products and/or services offered by the Regulated Entities; the need to perform a risk evaluation in case of operating in new geographic areas is also established.

Another issue addressed by the Resolutions, regarding the treatment of risks, are the obligations at the time of performing the know your customer process, commonly known as “KYC” (Know your Customer). Among the important points in this aspect, firstly, it differentiates and defines who are considered customers, users and suppliers. Secondly, the different stages that must be followed when performing due diligence (such as the identification, verification and monitoring stages). Thirdly, it divides the due diligence obligations according to four regimes (establishing the persons subject to each regime and the obligations of the regulated entities when one or the other regime applies); a general regime, a simplified regime, an expanded regime and a special regime for occasional customers performing foreign exchange operations (this regime is only applicable to banks and finance companies in Resolution No. 70).

The Resolutions establish administrative measures to be followed by the Regulated Entities in relation to market knowledge; due diligence policies in the knowledge of their directors, managers and employees, suppliers, intermediaries, etc.; establish training programs; internal manuals for the development and implementation of systems and procedures for the communication of the necessary information; processes for the detection and reporting of suspicious transactions; and the performance of internal and external audits in order to evaluate compliance with the established prevention policies and procedures.

Finally, Resolution No. 70 establishes certain obligations for banks and finance companies with respect to correspondent relationships with domestic or foreign companies, providing for certain obligations to be complied with when they assume a correspondent relationship. On the other hand, Resolution No. 71 establishes the obligation of insurance companies to require in their contracts with agents and brokers the compliance of their internal policies and procedures on the matter; and, in addition, the obligation to provide the Superintendence of Insurance with information related to the country of origin of the reinsurance companies with which they operate.

Should you require further information, please do not hesitate to contact Carlos Vouga (cvouga@vouga.com.py), Rodolfo G. Vouga (rgvouga@vouga.com.py) or Georg Birbaumer (gbirbaumer@vouga.com.py).

Last April 5, General Resolution No. 13/2019 of the Undersecretariat of State for Taxation (SET) brought together in a single regulatory body the situations that lead to non-compliance with formal obligations and their consequent pecuniary sanctions, in relation to the contravention established in Article 176 of Law No. 125/1991.

The corresponding annex establishes the amount of the fine applicable to each contravention. It groups them in the following sections:

• Non-compliance with formal obligations related to the Single Taxpayer Registry (RUC);
• Non-compliance with formal obligations related to the issuance and issuance of sales receipts and other stamped documents;
• Non-compliance with formal obligations related to the duties of printing companies;
• Non-compliance with formal obligations related to the filing of affidavits and informative tax returns;
• Failure to comply with formal reporting obligations; and
• Failure to comply with formal obligations related to other duties.

The resolution also provides that until June 30 of this year, the late submission of financial statements will be subject to a fine of ? 50,000. After this date, the fine provided for in the annex to this resolution (? 400,000) will be applied.

For more information regarding formal tax obligations and penalties, please contact Andrés Vera. avera@vouga.com.py and Rodolfo G. Vouga rgvouga@vouga.com.py.