Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Paraguay

Paraguay is taking steps to implement the legal basis for the transparency framework and to commence administrative preparations to ensure that information on rulings will be exchanged in a timely manner. Paraguay is recommended to finalise its information gathering process for identifying all past and future rulings and potential exchange jurisdictions, with a review and supervision mechanism, as soon as possible (ToR I.4). Paraguay is recommended to continue to put in place a domestic legal framework allowing spontaneous exchange of information on rulings and to continue its efforts to complete the templates for all relevant rulings and to ensure that the exchanges of information on rulings occur as soon as possible (ToR II.5).

Paraguay can legally issue one type of rulings within the scope of the transparency framework.

In practice, Paraguay has issued two past rulings; and for the calendar year 2017 (year in review), Paraguay issued no future rulings within the scope of the transparency framework.

As no exchanges of information on rulings were conducted, no peer input was received in respect of the exchanges of information on rulings received from Paraguay.

Introduction

998.  This peer review covers Paraguay’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

999.  Paraguay can legally issue one type of rulings within the scope of the transparency framework: rulings related to preferential regimes.1 Rulings are issued by the drafting and interpretation department, part of the technical tax directorate of the secretary of state for taxation. This secretary is part of the Ministry of Finance. Rulings are published in the Paraguayan tax administration website in a redacted form.2

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

1000.  For Paraguay, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2015 but before 1 April 2017; or (ii) on or after 1 January 2012 but before 1 January 2015, provided they were still in effect as at 1 January 2015.

1001.  In Paraguay, taxpayers applying for a ruling submit the appropriate form along with other requested documentation and the ruling is drafted by a case officer and reviewed by the head of department, legal coordinator, Director of technical tax directorate, before it is signed by the tax vice minister and entered into a database. A team of seven people were responsible for the verification process whether a ruling it is in scope.

1002.  Paraguay’s tax administration checked the date of issue of each ruling in the database to determine whether it qualified as a past ruling. Once selected as a past ruling, it was then checked against the category of rulings to determine if it is within scope of Action 5. This was done by manually reading the ruling.

1003.  In order to identify potential exchange jurisdictions, Paraguay made use of the “best efforts approach,” which involved searching information in the general database of the tax administration. In most of the cases, Paraguay was able to identify all potential exchange jurisdictions.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

1004.  For Paraguay, future rulings are any tax rulings within scope that are issued on or after 1 April 2017.

1005.  Paraguay’s tax administration acknowledges that it is not yet recording information on tax rulings issued with the necessary level of detail to timely identify any new rulings. However, if a future ruling was issued, Paraguay acknowledges it can request this information from the taxpayers or it could access it in the tax administration database. As such, it is expected that Paraguay could obtain information on all potential exchange jurisdictions in most of the cases. It is noted that Paraguay intends to implement guidelines and practices to make sure the necessary information to meet the requirements of the transparency framework is required in all cases.

Review and supervision mechanism (ToR I.4.3)

1006.  Paraguay did not yet have a review and supervision mechanism for past or future rulings under the transparency framework for the year in review. Paraguay is discussing the implementation of a revision and supervision mechanism for future rulings.

Conclusion on section A

1007.  Paraguay is recommended to finalise its information gathering process for identifying all past and future rulings and potential exchange jurisdictions, with a review and supervision mechanism, as soon as possible (ToR I.4).

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

1008.  Paraguay does not have the necessary domestic legal basis to exchange information on rulings spontaneously. This is because a domestic regulations on bank, professional and commercial secrecy, confidentiality and data protection specifically restrict the tax administration’s use of the taxpayer’s data. Paraguay is in the process of drafting legislation to address this legal impediment. Under Paraguay’s legal system, treaty provisions enabling administrative power such as exchange of information can automatically override the legal provision regarding the restrictions on use of rulings information. However, Paraguay does not have yet any international agreements that provide for spontaneous exchange of information.

1009.  Paraguay has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (the “Convention”) which is currently in undergoing internal process before being sent to the Paraguayan Senate for ratification. Paraguay is encouraged to continue its efforts to expand its international exchange of information instruments to be able to exchange rulings with all members of the Inclusive Framework.

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

1010.  Paraguay is still developing a process to complete the templates on relevant rulings, to make them available to the Competent Authority for exchange of information, and to exchange them with relevant jurisdictions.

1011.  With respect to the two past rulings identified within the scope of the transparency framework, it is noted that there was no obligation to exchange these rulings as there is no exchange of information agreement in place with the relevant jurisdictions.

Conclusion on section B

1012.  Paraguay is recommended to continue to put in place a domestic legal framework allowing spontaneous exchange of information on rulings and to continue its efforts to complete the templates for all relevant rulings and to ensure that the exchanges of information on rulings occur as soon as possible (ToR II.5).

C. Statistics (ToR IV)

1013.  As there was no legal basis for exchange in the year of review, no statistical data can be reported.

E. Matters related to intellectual property regimes (ToR I.4.1.3)

1014.  Paraguay does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
Paraguay does not yet have in place a process to identify all information on potential exchange jurisdictions.	Paraguay is recommended to finalise its information gathering process for identifying all past and future rulings and potential exchange jurisdictions, with a review and supervision mechanism, as soon as possible.
Paraguay does not yet have in place a process for completion of templates and exchange of information on rulings.	Paraguay is recommended to continue to put in place a domestic legal framework allowing spontaneous exchange of information on rulings and to continue its efforts to complete the templates for all relevant rulings and to ensure that the exchanges of information on rulings occur as soon as possible.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  With respect to the following preferential regimes: Tax incentive for national and foreign origin investments regime.

← 2.  Available at: www.set.gov.py/portal/PARAGUAY-SET/Home/Normativas (accessed 20 November 2018).