For much of its recent tax history, Paraguay was characterized by the absence of specific regulations regarding Transfer Pricing. While other Latin American countries developed regulatory frameworks inspired by the guidelines of the Organization for Economic Cooperation and Development (OECD), transactions between related parties in Paraguay were not subject to specialized valuation rules.
This situation changed with the enactment of Law No. 6380/2019 on the Modernization and Simplification of the National Tax System, which introduced a formal Transfer Pricing regime for the first time. Since then, the country has moved toward greater alignment with international standards for tax transparency and the control of intra-group transactions.
A Change Driven by Tax Modernization
Growing international economic integration has led tax administrations to strengthen mechanisms to verify that transactions between related companies are conducted under market conditions. This trend has been promoted by international organizations such as the OECD and the United Nations, whose guidelines aim to prevent the erosion of tax bases and the artificial shifting of profits between jurisdictions.
In this context, Paraguay incorporated specific Transfer Pricing provisions through Law No. 6380/2019, establishing a new framework for transactions between related parties. Subsequently, Decree No. 4644/2020 regulated the technical aspects necessary for its practical application.
The reform represented a significant step toward modernizing the Paraguayan tax system and aligning it with international best practices.
The Adoption of the Arm’s Length Principle
One of the fundamental pillars of the Paraguayan regime is the incorporation of the arm’s length principle, internationally recognized as the standard for evaluating transactions between related parties. Under this principle, transactions between related companies must be agreed upon under conditions equivalent to those that would have been agreed upon between independent entities under comparable circumstances. This approach allows the tax administration to determine whether the prices used adequately reflect the economic reality of the transactions and, if not, to make the corresponding adjustments.
The adoption of this principle constitutes one of the most significant elements of Paraguay’s alignment with the recommendations contained in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
Valuation Methods Aligned with the OECD
Paraguayan regulations recognize various valuation methods widely used internationally to determine whether a transaction complies with the arm’s length principle.
These include:
- Comparable Uncontrolled Price (CUP) Method.
- Resale Price Method.
- Cost Plus Method.
- Transactional Net Margin Method (TNMM).
- Profit Split Methods.
The incorporation of these mechanisms allows for the application of economic analyses comparable to those used in other jurisdictions in the region, facilitating tax management for multinational groups operating in Paraguay.
Likewise, the regulations include specific rules for certain transactions related to commodities, a particularly relevant aspect given the importance of agricultural exports within the Paraguayan economy.
New Obligations for Taxpayers
The implementation of the regime entailed significant changes for companies subject to these provisions. Taxpayers must properly identify their related-party relationships, document transactions with related parties, and retain information demonstrating compliance with the arm’s-length principle.
This process requires the preparation of economic analyses, comparability studies, and specialized technical documentation supporting the pricing policies applied by companies.
As a result, Transfer Pricing has become an integral part of comprehensive tax risk management, serving as a fundamental tool for anticipating contingencies and strengthening tax compliance.
The impact on the Paraguayan business environment
The adoption of Transfer Pricing rules has significantly transformed the local tax landscape. Multinational companies, exporters, maquiladoras, and business groups with cross-border operations must now consider economic and documentation aspects that were not previously part of their routine obligations.
At the same time, the existence of a regulatory framework aligned with international standards helps generate greater legal certainty and predictability for foreign investment—key elements for the country’s competitiveness in a globalized economic environment.
An evolution reflecting a regional trend
The Paraguayan experience demonstrates how demands for tax transparency and international cooperation have driven the modernization of tax systems in Latin America. What was, just a few years ago, a jurisdiction without specific Transfer Pricing regulations has become a country that applies principles, methodologies, and criteria widely recognized internationally.
This evolution confirms that Transfer Pricing is no longer an obligation exclusive to large economies or complex multinationals, but rather an essential component of modern tax management.
At TPC Group, we assist organizations with the analysis, documentation, and compliance of their Transfer Pricing obligations in Paraguay and throughout Latin America, providing specialized solutions that enable the management of tax risks and strengthen regulatory compliance in an increasingly demanding environment.
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