Category: Uncategorized

“According to the economic indexes calculated by the IFO Institute of Germany and the Getulio Vargas Foundation of Brazil, Paraguay is favorably positioned over the other regional countries with an Economic Climate Index (ECI) of 135.8, even above Brazil which, according to data counted up to April, has an average of 82.5.

A few days ago, the mayor of Asunción, Arnaldo Samaniego, highlighted this fact, arguing that the country is facing an economic policy in which “opportunities are opening up for Paraguay more than ever”.

In 2013, Paraguay achieved the third highest economic growth in the world, with 14.1%. For this year, the outlook is 5.5% to 7%, driven mainly by industry and construction.

According to the Ministry of Industry and Commerce, one of the pillars of this development is the so-called “maquiladoras”, companies that import parts and components of all products to be manufactured (assembled) in Paraguay and then exported.

Ernesto Paredes, executive secretary of the National Council of Maquiladora Industries, reported that 80% of exports are destined for Mercosur countries.

He detailed that up to May 15 of this year, maquiladora sales abroad amounted to close to US$ 80 million. In 2013, the total reached US$ 150 million.

The outlook, according to Paredes, is for continued growth: “Between last year and this year we have 17 new projects”.

Dear Friends,

We are pleased to announce the launch of our new website, institutional brochure and newsletter. On the website you will find updated information on the business climate in Paraguay, regulatory news, as well as recent activities of Vouga Abogados and its members.

Our brochure contains relevant information about our practice areas and reflects the values that identify us as a firm.

Finally, you will receive our newsletter from time to time, with the main business opportunities and other relevant news.

We hope you find it useful!

The Vouga Abogados Team

Moody's Investors Service has upgraded Paraguay's sovereign bond rating from Ba3 to Ba2, changing its outlook from stable to positive.

According to the firm itself, "the decision to upgrade Paraguay's rating is attributed to:

1. Improvement in the position of Paraguay's main fiscal indicators relative to the median of its peers in the 'Ba' rating category.
2. Strengthening of the institutional framework as a result of the legislative package approved last year.
3. Smooth political transition after the removal of former president Fernando Lugo in 2012.

In Paraguay, further developments are still awaited in relation to the second point. Among them, the regulatory decree of the Public-Private Partnership Law that will grant the possibility of making investments of this type in the country. The government estimates that the decree will be ready in early March.

RATIONALE FOR UPGRADING

FIRST ELEMENT - IMPROVED POSITION OF MAJOR FISCAL INDICATORS IN RELATION TO THE AVERAGE OF THEIR PEERS IN THE 'Ba' RATING CATEGORY

After the central government reported debt indicators of 18% of GDP and 112% of revenues on average during the 2003-2012 period, which compares to the median of 39% and 149% for countries rated in the 'Ba' category for the same period, these indicators declined to 12.7% of GDP and 79% of revenues in 2013. These levels are well below the median for the 'Ba' category of 36% and 151%, respectively. The financial burden of government debt, as measured by the interest payments to revenue ratio, is low with payments of less than 2% (Ba median: 7.7%) due to the concessional nature of Paraguay's debt. The average term of the country's debt is over 20 years.

While most of the government's debt is denominated in foreign currency, Paraguay has a natural hedge as revenues from hydroelectric power sales to Brazil and Argentina are denominated in U.S. dollars.

SECOND ELEMENT - STRENGTHENING THE INSTITUTIONAL FRAMEWORK

The government of President Horacio Cartes, who took office in August 2013, managed to pass several important bills within months of taking office. These include a tax reform, the Fiscal Responsibility Law, the Law for the Modernization of the Financial Administration of the State, the Public-Private Partnership (PPP) Law, and a revision to the Sovereign Bond Law.

THIRD ELEMENT - SMOOTH POLITICAL TRANSITION

The transition to power following the ouster of former president Fernando Lugo has been smooth, including the interim government of Luis Federico Franco and, more recently, the Cartes administration. There was no significant impact on the economy or the country's solvency during the transition period. In addition, Paraguay was ultimately reincorporated into MERCOSUR. During the transition period, the technical capacity of the Ministry of Economy and the Central Bank remained unchanged.

RATIONALE FOR POSITIVE OUTLOOK

The positive Ba2 rating outlook reflects our expectation that, while it will take time for the government to implement several laws passed in late 2013, it is likely to improve fiscal oversight (e.g., through the Fiscal Responsibility Law) and enable higher levels of infrastructure investments (e.g., through the PPP Law and/or the revision to the Sovereign Bond Law) in the medium to long term.

FACTORS THAT COULD RAISE/LOWER RATINGS

Upward rating pressure could result from: (i) successful implementation of the recently approved laws; (2) investments in the economy that diversify the economy and/or significantly improve infrastructure projects.

Downward pressure could result from: (1) a reversal in fiscal discipline; (2) a significant and prolonged commodity shock driven by either lower prices or adverse weather conditions; (3) sustained political instability.

TECHOS PAÍS

As a result of this rating action, the ceilings for long-term local currency bonds and deposits changed to Baa3 from Ba1, while the ceilings for short-term local currency bonds and deposits changed to P3 from Not Prime. The ceiling for long-term foreign currency deposits changed to Ba3 from B1, while the ceiling for short-term foreign currency deposits remains at Not Prime. The ceiling for long-term foreign currency bonds remains at Ba1, while the ceiling for short-term foreign currency bonds remains at Not Prime.

GDP per capita (PPP basis, US$): 6,053 (2012) (also known as Income per Capita)

GDP growth (percentage change): 13.6% (2013 Estimate)

Inflation rate (percentage change dec/dec): 4.2% (2013 Estimated)

General Government Fiscal Balance/GDP: -1.9% (2013 Estimate)

Current Account Balance/GDP: 0.8% (2013 Estimate) (also known as External Balance)

External Debt/GDP: 18.2% (2013 Estimate)

Level of economic development: Low level of economic resilience

Delinquency history: At least one episode of delinquency recorded since 1983.

On January 29, 2014, a rating committee of Moody's was convened to discuss the rating of the Government of Paraguay. The main points of the discussion focused on: The issuer's institutional strength/framework have grown significantly. The issuer's fiscal or financial strength, including its debt profile, has grown significantly. The issuer has become more susceptible to event risks. One analyst of the issuer, relative to its peers, indicates that a repositioning of its rating would be appropriate. Other issues discussed include: The issuer's economic fundamentals, including its economic strength, have not changed significantly. The issuer's management and/or internal governance practices have not changed significantly. The systemic risk in which this issuer operates has not changed significantly.”

We represented Equifax Inc. a global leader in information solutions, in the acquisition of a majority stake in Informconf S.A., the dominant credit bureau in Paraguay with a market share of over 90%. The transaction represented one of the largest acquisitions of its kind in Paraguay in recent years, and makes Equifax a leader in the areas of credit reporting and consumer and commercial information in Paraguay.

One of the major roadblocks which has confronted investors interested in developing Paraguay’s natural resources is the fact that, often, there are no roads connecting those resources with the rest of the country. Now that Paraguay has passed new legislation governing public-private partnerships, the country’s lawyers are heralding both an infrastructure boom and a crucial new phase in the country’s economic development.

The new PPP law was enacted at the beginning of November as part of a government drive to develop an estimated US$10 billion worth of infrastructure in the country, including roads, ports, airport and power distribution networks. With the government’s coffers unable to fund the majority of the infrastructure projects that the country so desperately needs to keep pace with its economic growth, partnering up with the private sector could prove to be what Paraguay needs to kick-start development in a range of fledgling industries. «There is an imperative need in Paraguay to invest infrastructure,» says Ferrere Abogados (Paraguay) partner Carlos Vasconcellos. «It’s the lifeblood of the economy and it has been delayed by the government for a long time.»

Out of 80 projects pending, the government has already identified 10 which it considers suitable to be structured under a PPP. «It will be a very useful tool for the government to attract investment,» explains Ferrere partner Nestor Loizaga. Given that the projects will be large scale, Vouga Abogados partner Jorge Figueredo says he expects the law to be of benefit primarily to foreign companies, as their Paraguayan counterparts are unlikely to have the resources, access to financing or technical capabilities. Indeed, the PPP model has generated considerable interest among investors across Latin America, and its introduction in Paraguay will provide them with more of an incentive to look to one of the region’s poorest countries. Shortly after the legislation was announced, local newspapers reported that a series of meetings had taken place between the government and several companies from Spain, Brazil, Chile and Bolivia to discuss the country’s prospects.

The law contains a number of features similar to comparable legislation across the region. It imposes a minimum capital threshold for projects of US$4.8 million, and has allowed for the creation of a public-private partnership project unit to coordinate all related matters, although the Ministry of Finance will have final say on whether a project may be structured as a PPP. Companies are also able to submit proposals to the government, which will the conduct a feasibility study, and if accepted a public tender will be launched. If the party which initiated the process is not selected, it will have the right to compensation for all expenses.

Any bidder awarded a project will be required to establish a joint stock company within a period specified in the contract, in which the bidder must be the majority shareholder. The bidder may also be required to establish a trust. On the government’s side, it will also seek to provide companies with certainty over their investments by setting up government-funded trusts to guarantee all outstanding agreements. «This will act as a kind of insurance for the private sector,» says Loizaga.

Although it is officially enshrined in law, much remains to be ironed out. The legislation is still pending a decree, to be issued within 120 days of the enactment, which will lay out the regulations governing PPPs in Paraguay. According to Figueredo, one of the most important issues to be included in the decree which is currently under discussion is a standardised template for drafting contracts. «In PPP law the contracts are more important than the laws themselves,» he points out.

There are a handful of other aspects of the law which the lawyers think could result in potential hurdles. For one, the contracting authorities are entitled to modify PPPs on public interest grounds. While a structure for compensating the private party is in place, Loizaga cautions that this represents «a red flag» for the private sector.

Similarly, although the law outlines a number of investment protection mechanisms, such as the government trusts that will back the projects, Peroni, Sosa, Tellechea, Burt & Narvaja partner Enrique Sosa Arrúa warns that the decree will have to provide carefully drafted regulations to ensure investors feel secure. «The projects, including the studies, pledges and contracts, will have to be adequately structured and grant sufficient legal security, which will require the development of strong institutional capabilities,» he says.

Figueredo suggests that the best way to implement the new legislation would be for the government to bring on board a consulting group from the multilateral agencies such as the IADB or World Bank with a view to reproducing the best practices in the region – he points to Chile, Peru and Colombia – in a way that suits the Paraguayan reality. He adds that the government should consult foreign companies to find out what they expect from a PPP law.

Regardless of how the regulations play out, the lawyers predict that the new law will see the entry of a number of major regional players into Paraguay. «There’s a lot of excitement both abroad and locally,» says Figueredo. «This is perhaps the main, and the only, tool to bring Paraguay into the 21st century and narrow the huge gap we have in infrastructure and public services.»

That investor enthusiasm in turn will trickle down to the country’s lawyers. While Figueredo expects law firms which have a large number of foreign clients on their books to lead the way, he adds that the impact is likely to be so significant that there will be additional space for the smaller local firms. «Companies generally prefer the biggest firms which are used to sophisticated legal and financial tools, so they will have an advantage, but I’m sure there’s also a space for boutique firms that can set up this knowhow and be able to attract investors from abroad,» he says.

As Sosa, who is working on the drafting of the law, points out, «any new and powerful legal instrument without doubt has a great impact on the legal community.» He counsels lawyers interested in capitalising on work arising from the new law to carefully study the framework, as well as taking note of the experiences from other countries. «This will require a greater exchange of information among law firms,» he suggests.

In terms of practice areas which are likely to benefit, because of the provisions outlined in the law for the creation of trusts, this could prove an important area for lawyers to lend their skills to. Furthermore, arbitration lawyers will see their expertise in demand given that foreign companies will certainly request conflict resolution clauses in the PPP agreements.

More generally, Figueredo says he believes that the entry of foreign players will have an important impact on the legal profession. As local lawyers will be attending to demands of foreign clients, they will be brought up to speed on the more sophisticated legal structures that are common elsewhere.

Loizaga hopes that Ferrere will be able to capitalise on the work thanks to its Uruguayan branch, which has more experience of PPP projects and international investors, although all the country’s larger firms are likely benefit. «It will have a big impact,» he says. «Investors will for sure require legal advice in the bidding process and many aspects of the process which have previously been unheard of in Paraguay but which are common in the region.»

While Paraguay is set to benefit from the new legislation whatever happens, the key to the country’s development will be ensuring that it can keep reeling in foreign investment in the long term. Given that most major infrastructure projects have a duration of 15 to 20 years, they will not be started and finished under the current administration, meaning that Paraguay will have to convey a message to investors that it is a stable country in which to do business. «The success of this new framework will depend a lot on the government and what they convey to the private sector,» Loizaga says.

1. In your jurisdiction, can the acquisition of a domestic target limit the target’s use of existing tax attributes, such as net operating loss carry forwards or tax credits? Are there strategies or structures to preserve such attributes?
   
   No, in Paraguay the acquisition of a domestic target cannot be a cause of limitation or loss of tax attributes. The general rules on expiration of tax cred-its are applied only in a general way, without taking into account the transfer of shares or companies.
   
   
2. When companies that are resident in your jurisdiction are sold to foreign investors, is it more common to sell stock or assets?
   When selling companies to foreign investors, it is normal to sell the shares, although, it is also possible to carry out a transfer of assets.
   
   
3. Are there particular structures that generate a step-up in the tax basis of assets in a tax-efficient manner?
   It is not applicable according to Paraguayan tax legislation.
   
   
4. Are there structuring opportunities that would enable a foreign acquirer to provide equity consideration to the shareholders of a domestic target in a tax-deferred manner? Are the rules similar if both the acquirer and the target are domestic?
   It is not applicable according to Paraguayan tax legislation.
   
   
5. Can management generally roll over its equity in an acquisition in a tax-deferred manner? Are there certain circumstances where a tax-deferred rollover is difficult or impossible?
   It is not applicable according to Paraguayan tax legislation.
   
   
6. Which holding company structures are typically used by foreign investors to acquire domestic targets in your jurisdiction?
   They are usually structured through corporations that own shares in other companies (divisions) of the group, according to the organisational structure adopted for the different branches of business, and the design and planning of the commercial processes in the most efficient way possible.
   
   
7. What types of tax benefits typically arise in connection with transactions in your jurisdiction? Do the parties typically address allocation of such benefits in the transaction documents?
   
   There are special regimes that provide tax benefits, such as the Maquila regime, Law No. 60/90 of Promotion of Investments and the Law of Free Trade Zones, among others.It is not normal for parties to refer specifically to such benefits in their contracts; however, it is common for transaction documents (contracts) to address issues related to responsibility for taxes.
   
   
8. Do real estate transactions (or transactions involving real estate holding companies) create special tax issues in your jurisdiction?
   No, real estate transactions do not create special situations in Paraguay.
   
   
9. Are there other categories of transactions(involving other types of assets or specific types of entities) that raise distinctive tax issues (for example, in the United States, transactions involving real estate investment companies and regulated investment companies)?
   
   The Paraguayan tax system, in general, applies equal tax treatment to companies regardless of the adopted corporate type.
   
   
10. Does your jurisdiction impose any distinctive taxes (eg, non-income taxes) that need to be specifically addressed when structuring and documenting cross-border deals?
    
    Yes, VAT must be taken into account in the structure of cross-border deals, as well as Income Tax. In these cases, VAT applies to services that are used or exploited in the country, regardless of the place where the contract is concluded, the domi-cile, residence or nationality of those involved in the operations, as well as who receives the payment and the place where the payment comes from.
    
    
11. Do withholding taxes apply to transactions either from or into your jurisdiction?
    
    Yes, in terms of cross-border deals, tax withholding applies when the law considers that it is an income from a Paraguayan source (Income Tax) or if it meets the principle of territoriality of the VAT.
    
    Retention (usually VAT and Income Tax) is applied in the payment source.
    
    Whoever pays, accredits or settles income to non-resident persons is obliged to make the applicable deductions and pay them to the Treasury, being jointly responsible for the payment of such taxes if it is not retained, and releasing the debtor once the retention is performed.
    
    
12. If withholding taxes apply to a transaction,what are the rates? Can they be reduced by treaty or are there structuring techniques or certification processes to avoid or mitigate the tax cost?
    
    Non-resident companies that obtain income from a Paraguayan source will be subject to tax withholding.
    
    In terms of income taxes (IRACIS), the rate for non-residents is 30 per cent. However, to determine the withholding net income, irrefutable presumptions are established (presumptions that do not allow evidence to the contrary) according to parameters provided by Law, establishing which portion of the income will be considered as from Paraguayan source.
    
    Thus, the tax rate will be applied on the “n” per cent of the gross amount paid, credited or sent to the recipient abroad, where it turns out that the lowest direct rate is 3 per cent and the highest 30 per cent.
    
    Operations Portion of rent from Paraguayan source Rate Retention with absorption Insurance premiums covering risks in the country. 10% 30% 3.09% Operations of passages, radiograms, phone calls, transmission of audio and video, transmission and reception of data over the internet protocol and other similar services provided from the country to abroad and from abroad to the national territory. 10% 30% 3.09% International news agencies. 15% 30% 4.71% Distributors of cinematographic films or television tapes and any other similar means of projection. 40% 30% 13.64% Operations of international freight. (Exportation freights are exonerated.) 10% 30% 3.09% Use of containers. 15% 30% 4.71% Loans from abroad: gross amounts paid, credited or remitted to banks or financial institutions or other lending institutions of recognized trajectory in the financial market and multilateral credit organisations, based abroad, in concept of interests and commissions for loans or operations of similar credits. 20% 30% 6.38% Other activities by default. 50% 30% 17.65% Income or gross amounts credited, paid or remitted from branches, agencies or subsidiaries of foreign people, located in the country, not included in the above tables. 100% 30% 42.86% In terms of income tax, only two treaties are effective for preventing double taxation of the income tax, which have been signed with Chile and China, and which could eventually be used to mitigate costs or plan its distribution.
    
    There are also some international treaties to avoid double taxation in matters of air, land or water transportation.
    
    
13. Are VAT or transfer taxes significant? If so, in which types of transactions?
    
    VAT levied on sale of goods, not personal services and the importation of 
    goods.
    
    The general VAT rate is 10 per cent. There are lower rates than the mentioned. Currently, to all exceptional cases a 5 per cent rate is applied.
    
    In the case of services and technical assistance, where the concept of territoriality extends to all those who are used or exploited in the country, it is important to pay attention to the applicable rate; so for example, in the case of financing the rate is 5 per cent. The same rate is applied in the cases of cession of usage of goods and transfer of real estate.
    
    Law No. 5061/2013 will become effective in 2014 and as a result, the rate of 5 per cent VAT for financing will only be applicable to the interests, commissions and surcharges of loans granted by intermediate financial institutions regulated by the banking law. In addition, the rate of 5 per cent would not be applicable to the leasing of general goods, but only to the rental of buildings, except statutory provisions to the contrary.
    
    
14. Are there strategies to mitigate VAT or transfer taxes? What party typically bears the costs of VAT and transfer taxes?
    
    Each case must first be analysed. However, the seller is the subject forced to pay the tax that will be supported economically by the buyer.
    
    According to the Law, the seller is always a taxpayer. However, from an economic point of view, and by the very nature of this tax, it is transferred to the purchaser and so on until the final consumer.
    
    Since this is an issue that goes beyond the legal sphere, in terms of cross-border deals it is common to provide that the “agreed price” is tax free. Thus, the buyer must absorb the VAT, mitigating the payment of the taxes for the seller.
    
    
15. What is the statute of limitations for tax claims in your jurisdiction?
    
    Tax claims prescribe in 5 years, counted from 1 January of the following year in which the obligation must have been paid.
    
    According to the peaceful interpretation of the courts and of the Supreme Court, this term is computed from the day following the closing of the fiscal year. So, for the fiscal year ended on 31 December 2012, the term starts on 1 January 2013. However, the tax administration interprets that the computation of the prescription starts on January 1 2014.
    
    The action for collecting the pecuniary sanctions and interests has the same statute of limitation than the respective tax.
    
    With respect to evasion offences, the term is computed from 1 January of the following year in which the offences were committed.
    
    
16. In your jurisdiction, can a target be liable for taxes of other members of the consolidated group of which it was a member prior to an acquisition? Is the tax authority likely to assert such a liability against a target?
    
    No, in Paraguay there are no rules governing tax consolidation of business groups. By application of the principle of legality, the tax administration cannot assert or apply a liability of this type.
    
    
17. Is there a typical approach to pre-closing tax indemnification in your jurisdiction?
    
    There is no legislation about this since contractual freedom is wide in private law. However, such approaches would not be enforceable against the tax authority.
    
    
18. Are indemnification payments under a purchase agreement taxable to the recipient? Is an indemnity obligation in your jurisdiction typically grossed up for taxes?
    
    Indemnification payments that only involve payments for damages are not taxed in Paraguay. Under this context, any compensation agreed upon in the process of acquisition of a local company shall not be taken into account for calculating income tax, provided that what is being paid only involves payments for damages. Any patrimonial increase above this measure will be considered taxable. VAT is not applicable.
    
    
19. Under what circumstances would an investor in a target in your jurisdiction have a tax filing obligation in your jurisdiction solely as a result of its equity interest in the target company?
    
    When a non-resident makes an investment to purchase shares in a local company, he pays income tax (IRACIS) via withholdings of taxes.
    
    It is necessary to explain that the income tax rate is 10 per cent. However, when the company distributes profits, an additional rate of 5 per cent is applied, and when profits are remitted abroad (a non-resident) an additional rate of 15 per cent will apply, based on the amount effectively paid.
    
    
20. In your jurisdiction, are there techniques to efficiently push debt down into subsidiaries in jurisdictions with high tax rates?
    
    There is no specific legislation applicable in this regard, although planned commercial transactions could have this effect.
    
    
21. Describe any limitations, such as earnings stripping or royalty stripping rules, that limit the ability to effectively shift taxable income when structuring M&A deals.
    
    There is no specific legislation applicable in this regard.
    
    
22. Is there transfer pricing legislation in your jurisdiction that could apply to transactions among a target and its subsidiaries or affiliates? If so, how restrictive is it?
    
    Yes, but “transfer prices” legislation is incipient. In addition, tax administration has conducted inspections with this objective using the principle of interpretation of the economic reality as a legal tool.
    
    For income tax, the existing legislation today presumes, in absence of proof to the contrary, that in the case of importers, the cost of goods introduced in the country cannot be higher than the wholesale price at the place of origin, plus transport and insurance costs to Paraguay. Any difference above such price will constitute taxed net income. In the case of exports where the prices have not been set or where the declared price is lower than the price of the wholesale and retail in the country plus transport and insurance costs until the place of destination, this last price will be considered as the basis for determining net income.
    
    On the other hand, Law No. 5061/2013 was recently enacted, which, inter alia, gives mechanisms of price adjustment to the export of certain types of goods, thus modifying the rules of the Income Tax.
    
    This Law provides mechanisms for price adjustments starting in 2014, applicable to exports of goods whose international prices are of public knowledge, through transparent markets, stock exchanges and the like.
    
    Thereby, for the purposes of payment of income tax, according to this law, prices entered in the export documents must comply with prices established by markets or stock markets to the date of compliment of the shipping, or in its default, the previous day in which there is a price. For future operations it empowers the Executive Branch to regulate the application of the rule.
    
    The adjustment of price determined in such a way shall constitute the net income of Paraguayan source for liquidating income tax, without admitting proof to the contrary.
    
    
23. Does your jurisdiction have anti-deferral regimes that apply to operations and income of subsidiaries (for example, a controlled foreign corporation regime, whereby a parent entity would be required to take into income undistributed income earned by a subsidiary)? Do these regimes affect cross-border planning?
    
    There is no specific legislation applicable in this regard.
    
    
24. Are there exit strategies, besides stock or asset sales, that are used in your jurisdiction to achieve tax benefits?
    
    Yes, for example, a merger, split-up and other forms of company restructuring could be applied. Generally it is considered that they do not generate effects in terms of income tax, and the same happens with the VAT.
    
    
25. Discuss your tax treaty network and how that facilitates or impacts tax structuring for cross-border deals.
    
    Our network of international tax treaties is minimal, since only two treaties are currently in force in order to avoid double taxation regarding income tax. One signed with Chile (includes taxes on the assets) and another one signed with China.
    
    In addition, there are a few treaties to avoid double taxation in the field of transportation, especially air transportation, such as Argentina, Chile, Uruguay, Germany, Belgium and others.
    
    Because of the short extension of our network of tax treaties, we consider that its usefulness is limited to particular situations where a corporate group has established or may establish a company with which it is possible to operate in certain situations in order to mitigate the tax impact.
    
    
26. Does your jurisdiction identify certain jurisdictions as tax havens and subject them to adverse tax consequences when they are involved in M&A transactions? Give details.
    
    No, the Paraguayan legislation does not have rules limiting commercial operations with any jurisdictions such as those having tax benefits or are con-sidered tax havens.
    
    
27. Describe any material state, provincial or local taxes that may arise in an M&A deal involving a target, a buyer or a seller located in your jurisdiction.
    
    We consider that merger or split-up operations do not generate taxable income, VAT is not applicable.
    
    The transfer of shares of a Paraguayan company that generates a surplus to the seller will be taxed by income tax; however, such operation will not generate VAT if the seller communicates to the Tax Administration this fact within a certain period, and will be totally exonerated from VAT from 2014 without such notice.
    
    
28. Are there any proposed laws or regulations that could significantly change how transactions are structured in your jurisdiction?
    
    Although Law No. 5061/2013 was enacted in October 2013, which amended rules relating to VAT and income tax, and will take effect in 2014, it does not affect by itself the form of structuring of cross-border deals except in what refers to the export of goods priced in a transparent market (see question 22).
    
    In the past, the Tax Administration presented to Congress a draft Law that regulates transfer pricing. This draft would be more complex with respect to the standard approved by Law No. 5061/2013. However, it has not been treated yet, but we can say it is “dormant”.
    
    
29. What are the corporate tax rates applicable in your jurisdiction on ordinary income and capital gains? Are there any other categories of income subject to preferential rates that are relevant in M&A deals in your jurisdiction?
    
    The general rate of commercial income tax is 10 per cent. Additional fees will apply in the event that the local company decides to distribute profits, in the following manner:
    
    • a rate of 5 per cent on distributed profits; or
    • when such profits are going to be referred abroad an additional withholding of 15 per cent will be applied to nonresident shareholders or partners.
    There is not another category of income tax relevant to M&A.
    
    
30. Does your jurisdiction impose any taxes as a result of the indirect transfer of a company organised in your jurisdiction?
    
    No, in this case the Paraguayan legislation will not apply any tax. It will be considered as a case of no incidence.
    
    
31. Are there significant tax issues relating to foreign currency matters in transactions in your jurisdiction involving buyers or sellers resident in other jurisdictions?
    
    There are not significant tax issues worth mentioning.
    
    
32. Discuss and describe any other relevant tax issues in cross-border M&A transactions in your jurisdiction that are not covered in the prior questions. 
    
    No comments.

Reproduced with permission from Law Business Research Ltd. This article
was first published in LATIN LAWYER Reference – Tax in Cross-Border Deals
2014 (Contributing Editors – Todd Crider and Robert Holo – Simpson
Thacher & Bartlett LLP). For further information please visit
http://latinlawyer.com/reference/topics/75/tax-cross-border-deals.