Category Archives: Berke Report (en)

Until a few days ago, Paraguay was one of the few countries in the region that did not have an administrative procedures Law that would systematically consolidate in a single legal body the rules that govern procedures before the Administration, despite the fact that the National Constitution itself establishes the right of individuals to file petitions before the authorities (art. 40). This situation took a resounding turn on September 29 with the publication of Law No. 6715 on «Administrative Procedures» in the Official Gazette (the «Administrative Procedures Law»).

This Law resulted in multiple legal loopholes that acted by omission, mainly to the detriment of the rights and guarantees of the administered parties, who by virtue of general regulations or responding to customary practices of the administration were exposed to the exercise of the exorbitant powers of the State, were resolved. For such reason, we celebrate the regulation of the exercise of authority by the administration, and the establishment of this sort of balance and legal security in administrative offices regarding the relationship and existing connection between the Administration and the Administrated parties.

The regulated activity acquires upmost importance in regard to administrative activity as a mechanism that allows effective realization and satisfaction of general interests. The enactment of a specific law on administrative procedures confers legal certainty, while bringing predictability and certainty to citizens regarding actions by public authority, and ensuring, on the one hand, the «timely defense» in favor of the administered parties and the «regulated activity of the Administration” on the basis of strict compliance with the principle of legality.

The new Administrative Procedures Law is responsible, among other matters, for: i) defining the administrative act and its classification; ii) identifying the fundamental elements for the validity and regularity of the administrative act; iii) establishing causes for nullity and voidability of administrative acts and means for revocation or correction; iv) providing the principles that should govern all administrative procedures; v) considering the possibility of carrying out administrative procedures and actions electronically; vi) regulating types, terms and forms of filing administrative appeals, vii) establishing the rules of procedures for administrative sanction (summary proceedings to individuals) and viii) configuring the basis for exhaustion of administrative procedure.

From the content of the Administrative Procedures Law, it is particularly considered relevant to highlight the following:

Administrative act: It is defined as any unilateral declaration made by an organ of the Public Administration in the exercise of administrative functions, which produces legal effects of general or particular scope.

Effects of the filing of administrative appeals: The filing of administrative appeals will not suspend the execution of the contested act, although there are exceptions, as an express rule that establishes otherwise. In addition, the execution of the act may be suspended ex officio or at the request of the appellant if such execution is likely to cause damage that is impossible or difficult to be repaired to the appellant, when a serious defect is proven in the act or for reasons of public interest.

Precautionary measures: The administrative authority ex officio or by request of the administered party may issue and order precautionary measures to preserve health, public safety or for any other reason of general interest

Non-formal administrative procedure: The ordinary administrative procedure is not formal, in the sense that if there is no special procedure legally prescribed, the acting authority can choose the most appropriate procedure as long as the principles of speed, efficiency and reasonableness are met.

Silence of the administration: If a definitive resolution is not issued within the legal deadlines in procedures initiated by individuals, such requests will be considered as denied -once configured what in law is known as an implied resolution- which opens the way to file the administrative appeals that may correspond.

Sanctioning procedure: Administrative procedures are regulated to impose administrative sanctions on individuals who have committed administrative offenses legally established, within the framework of administrative proceedings to be followed under unrestricted respect for the principles of the presumption of innocence and the right to defense. Basically and except for justified reasons, summary proceedings should not exceed four months in total. Infractions prescribe after two years.

Use of electronic means: Formalities and actions of administrative procedures may be carried out by electronic means and will have full legal validity and probative value. Its use will be regulated by the Executive Power.

The table below summarizes information on administrative appeals and contentious-administrative actions, under the Administrative Procedures Law:

Type of appeal	Applicable Acts*	Reception office	Term for filing	Resolution period
Reconsideration request	Against definitive resolutions that resolve the merits of an issue or put an end to an administrative action	The same authority that issued the act subject of challenge .	Within the following 10 business days upon being notified	20 business days. If no resolution is issued until the term expires, the appeal will be considered denied.
Hierarchical appeal	Against the resolution that rejects the appeal for reconsideration, or directly against definitive resolutions that resolve the merits of a question, regardless of the appeal for reconsideration .	The highest competent authority of the body from which the act that is being challenged emanated	Within the following 10 business days upon being notified or from the day after the deadline to resolve the reconsideration expired.	20 business days. If no resolution is issued until the term expires, the appeal will be considered denied.
Contentious-administrative action	Against acts that do not fit any administrative appeal. .	Before the Exchequer Court of the Judicial Power .	Within the following 18 business days upon being notified about the resolution that the administrative offices were exhausted or from the day after the expiration of the term that exhausts said route.	The Exchequer Court must resolve the issue within 30 days following the court order has been executed. (This term is provided by Law No. 1462/35)

* Administrative appeals against regulations or administrative acts of preparatory nature or mere formality, are inadmissible.

It should also be noted that the supplementary rules regarding this law are those contained in the Civil Procedure Code as long as no incompatibility in administrative matters is noticed.

Finally, it should be noted that the law enters into force one year after its publication (09/29/2022), term in which the Executive Branch must establish its regulations.

For more information, please contact Adriana Ocampos: adriana.ocampos@berke.com.py and/or Dahiana Acosta: dahiana.acosta@berke.com.py and/or Martin Carlevaro: martin.carlevaro@berke.com.py

The National Securities Commission (CNV) issued the first 2018 Circular Letter (CNV/DIF Nº 001/2018) addressed to Stock and Commodities Markets, Brokerage Houses and Management Companies for Equity Investment Funds.

This Circular Letter was released by the CNV as the competent supervising entity, based on Resolution Nº 614/2017, issued by the Secretariat for the Prevention of Laundering of Money or Assets (SEPRELAD), which establishes as reporting entities those natural and judicial persons that are engaged in activities that involve extending credit or lending money, from their own financial resources, or managing credit portfolios, and also provided for their entry in a Register set by SEPRELAD for such purpose; said Resolution will come into full force on February 1st, 2018.

The CNV, through the mentioned Circular Letter, exhorts the mentioned supervised entities, namely Stock and Commodities Markets, Brokerage Houses and Management Companies for Equity Investment Funds, considered by the National System for Anti-Money Laundering and Combating the Financing of Terrorism (ALA/CFT) for a long time now as reporting entities within the scope of the stock market, to ensure that the natural and judicial persons engaged in such financial activities are required to submit a certificate of being registered in the mentioned Register set by SEPRELAD, during their Due Diligence and Know Your Client processes.

Through this CNV´s Circular Letter, the first of year 2018, these provisions, determined by SEPRELAD by means of Resolution No. 614/2017, are enforced and strictly observed, and, consequently, the CNV proceeds to incorporate a review of compliance within its control and supervision programs

Last October 17th, Attorneys of the Firm BKM I BERKEMEYER, Federico Valinotti and Jorge Figueredo Klein, offered a dissertation before the Paraguayan-American Chamber of Commerce (PANCHAM) regarding Decree No. 359/18 “By which the legal provisions regulating the Personal Income Tax (IRP) are specified and unified” issued on Friday, October 5th, 2018, mere days before the beginning of the submissions of tax returns for the settlement of the tax due for the fiscal year 2017.

In this regard, upon being invited by the PANCHAM, and after a brief introduction regarding the history of the Personal Income Tax in Paraguay  offered by the heads of said Chamber, Mr. Roberto Chinan (President) and Dr. Daniel Elicetche,  the aforementioned attorneys explained the process of the negotiations between the business sectors and accountants in representation of the private sector and the current authorities of the National Government, that ended with the signature of Decree No. 359/18 (which regulates the aforementioned tax), and also compared the changes included and the matters that were not affected with regards to the Decree previously in force, No. 6.560/16, which was then rendered invalid by Decree No. 359/18.

It is important to note that the issuance of the aforementioned regulations put an end to nearly two years of discussions and negotiations on the different interpretations of the way to settle the mentioned tax, which included the submission of a Non-Binding Query signed by all business sectors in the country, and several Unconstitutionality Actions. These are procedures in which the aforementioned attorneys have advised the National Chamber of Commerce and Services of Paraguay (CNCSPy) and by extent, the FEPRINCO (Federación de la Producción, la Industria y el Comercio – Federation for the Production, Industry, and Commerce) along with other prominent attorneys and accountants.

The dissertation had a significant attendance of professional accountants and attorneys as well as tax payers affected by the mentioned tax. The dissertation was open to not only members of the Chamber but also the general public, and ended with a Q&A segment which helped to clarify the most concerning aspects of the settlement of the tax as per the new regulation. The importance of the agreement achieved between the parties involved towards the legal certainty of the country was also highlighted.

For further information on the existing changes in Decree No. 359/2018 and the modifications with regards to the previous regime, please reach out to Federico Valinotti (Federico.valinotti@berke.com.py) and Jorge Figueredo (Jorge.figueredo@berke.com.py).

Lawyers from BKM Berkemeyer Law Firm have actively participated in the process and negotiation between the private sector unions led by FEPRINCO and the current authorities of the National Government, represented by high officials of the Sub Secretaría de Estado de Tributación (SET) [State Tax Agency] of the Ministry of Finance in order to reach an agreement for the amendment of the previous Decree N⁰ 6.560/16 and derived regulations that governed to the Personal Income Tax (IRP). 
 
This way, the Firm’s Lawyers, who advised the National Chamber of Commerce and Services of Paraguay (CNCSPy), since October 2017, have conducted an exhaustive study of the current text of Law N⁰ 4.673/2012 and proposed several alternative solutions for the impasse arisen between the former SET authorities and the local business community during the previous Administration, actively accompanied the negotiations that took place at the end of last year and concluded with a Joint Statement between the private sector and the SET establishing the existing conflicts. Subsequently, together with accountants from the company ALIANZA, who represented another union, worked in a Non-Binding Consultation presented by all the business associations in the country and finally, at the request of business associations, they worked and exercised procedural representation in an action of class unconstitutionality filed by tens of affected taxpayers.  
 
Finally, after difficult negotiations that started upon the assumption of the current Government Authorities, namely after August 15, 2018, the Parties (that include, besides business associations and SET representatives, several unions and associations of accountants) reached an agreement on most of the conflicting issues, reflected on Decree 359/2018 issued on October 5th, considering that the filing of the first sworn statements for compliance with the IRP tax started on October 7th.
 
This Decree ended almost two years of discussions between businesses, accountants, and the National Government, unifying criteria and interpretations and providing legal security in tax matters in Paraguay until the next enactment of a new personal income tax expected by year 2020.  
 
For more information regarding the existing changes in Decree 359/2018 and modifications in regard to the previous regime, please contact Federico Valinotti (federico.valinotti@berke.com.py) and Jorge Figueredo (jorge.figueredo@berke.com.py)

• Deduction on Investment

2012 – 2016 Period

Standards and criteria applied during the Fiscal Years 2012 through 2016, included, remain unaltered, therefore, any interpretations published by the SET based on Decree N⁰ 6560/2016 and/or restrictive investments became null. 

Taxpayers who, upon receiving notices in October/2017, have amended their Sworn Statements and paid the tax, may request the relevant Reimbursement of Payment with no obligation to submit any External Tax Audit Report. 

General rule: 

Deductibility of all investments related to taxed activities and/or acts that generate the tax is allowed, according to Art. 10 of Law N⁰ 2421/04 and its amendments. 

Expenses as well as investments are deductible as long as they are necessary to obtain and maintain the source that causes the income, represent a real expense, and are duly supported by documents.

Non-deductible investments are expressly and exhaustively established.

Special Rules:

In the case of capital contributions to companies incorporated in the country, acquisition of stocks or share of companies incorporated in the country, since Fiscal Year 2017, a 50% deduction over said investments is allowed. 

So, it should be considered that:

– When the taxpayer pays a compulsory social security based on the obtained income and investments are assigned to registered shares issued by Publicly Traded Companies or other companies, the amount allocated to the investment will be deductible as such up to 50%, in any of the cases.

– When the taxpayer pays no compulsory social security based on the obtained income and investments are assigned to registered shares issued by Publicly Traded Companies,  the amount allocated to the investment will be fully deductible in this case as an investment up to 15% of the gross income for the settled fiscal year, in case of exceeding said percentage, the remaining portion will be deductible up to 50%.

• Carrying forward and compensation of investments losses 

Allowed deductions, conditions:

– Made with taxable income of any Fiscal Year, and/or

– Covered by loans.

– Generated tax losses may only be carried forward to the following fiscal years if they are the result of deduction of admitted investments, and up to 20% of the Net Income of the following five (5) Fiscal Years.

• Earnings from the sale of company stocks, shares of companies and real estate 

There are no changes regarding this item, incomes from transfer/sale of stocks, shares of companies, real estate, and other similar assets are settled based on imputed income or real income (when the buyer is an IRACIS or IRAGRO taxpayer), whichever is less.

• Dividend Billing

The billing of dividends paid by companies will not be considered or computed to determine if the taxpayer is required to have an External Tax Audit judgement.

Managing partner Hugo Berkemeyer is skilled at steering the firm towards areas of opportunity in Paraguay’s growing economy. The calibre of multinational companies that turn to it for deal work underscore the firm’s transactional skills, while investment in its project finance and infrastructure capabilities have more than paid off, particularly for PPP work.

Partners specialising in tax, environment and labour law, as well as litigation, are on hand to ensure clients receive a complete service offer. BKM | Berkemeyer also has a deep knowledge of the country’s more traditional sectors. It has an agribusiness and real estate practice to assist local and foreign companies investing in each area, and advises foreign financial institutions lending to them.

BKM | Berkemeyer is taking advantage of Paraguay’s economic growth. It has increased its headcount and taken on new offices in Asunción’s business district. The firm is doing more real estate work as developers also take advantage of the country’s growing economy. It has hired associates to accommodate the growing demand for labour advice from Argentine companies and boosted its tax team in line with new regulations from the tax authority.

While the firm is an established player having been in the market for 60 years, it has a modern approach. The leadership fosters team-work and promotes an open working culture that encourages associates to get involved. As part of that, it has a new compensation system and career programme, as well as policies in place for international studies and to foster diversity and pro bono.

Clients praise the firm’s high-quality advice and business-minded approach. International names dominate the firm’s books, thanks to lawyers speaking a range of foreign languages (German is a strength here). For clients unfamiliar with Paraguay’s business climate, the corporate practice is a one-stop shop offering services from human resources to accounting. The firm also maintains ties to the business world through its involvement in the Paraguayan American Chamber of Commerce. This firm’s service offer is enhanced through the team’s links to the government and the assistance its lawyers have provided in drafting parts of the country’s legislation.

Source: https://latinlawyer.com/ll250/firms/1132076/bkm-berkemeyer

A number of specialized magazines from the Latin American legal market published articles regarding the advisory assistance provided by the firm BKM | Berkemeyer to Rutas del Este S.A.

Read More:

http://lexlatin.com/noticia/rutas-del-este-crea-fideicomiso-garantizar-credito-sindicado-paraguay/https://latinlawyer.com/article/1166323/berkemeyer-gross-brown-vouga-and-olmedo-in-landmark-paraguayan-ppp-financinghttp://www.abogados.com.ar/consorcio-rutas-del-este-obtiene-financiacion-de-bancos-locales-en-paraguay/21071

This week, the Ministry of Finance presented the bill on tax reform to the private sector, which provides for a number of modifications, being one of them to include incomes obtained by taxpayers abroad in the scope of personal income tax (IRP). This way, not only incomes from Paraguayan sources would not be taxed, but also certain income generated in foreign countries, including the unification of income tax rate at 10%.

Another point addressed there is the division of personal income into three categories (i) The so-called Dividend Distribution Tax (IDI), (ii) Personal Income Tax (IRPSP) for personal services, either professional or not (10%), and (iii) Personal Income Tax (IRPGC) on capital gain and/or patrimonial increases (10%). These three categories would be determined separately with no possibility of loss offset against each other.

Regarding the Income Tax on Commercial Activities (IRACIS) and Income Tax from Agricultural Activities (IRAGRO), said reform intends to merge such taxes under a «Business Income Tax” (IRE) form, which would tax the income from commercial, industrial, non-personal and agricultural activities, and in general, all types of profits, benefits and patrimonial increases obtained by a taxpayer, except those that are expressly exempted, at a projected 10% general rate.

Likewise, a new tax called «Dividend Distribution Tax» (IDI) is proposed, which would tax dividends, surplus or net income made available or paid by partners or shareholders of Partnerships, Cooperatives or Private Entities of any nature by taxpayers, at an 8% rate for residents and 15% rate for non-residents.

Consequently, the additional rate is increased by profit distribution from 5% to 8% for partners that reside in Paraguay and provides for a reduction in the tax burden for non-resident partners, who would pay only 15% rate (currently taxed at 5% + 15%).

In case of resident natural persons, this payment, performed through a withholding, constitutes a single and definitive payment, non-computable against personal income tax; however, in case of legal entities, the tax is computable under a credit method in order to avoid double taxation.
It should be noted that this increase in dividend distribution rate is 3% for the local IRACIS taxpayer and 8% for the IRAGRO taxpayer.

Also worth noting is the fact that taxation for non-resident companies and natural persons is separated from the IRACIS and the IRP, regarding incomes obtaining from Paraguayan sources; presumed net income are established between 30% and 100% of the gross amount paid, at a 15% rate.
Finally, it is important to highlight that private sector requested 3 (three) weeks period to analyze and give their opinion on the project, taking into account that the final draft was received by the main union leaders, and still has to be internalized in each guild.

The use of bankruptcy proceedings as punitive sources for insolvent debtors has been left frozen in time. When enacted, Law No. 154/69 regarding Bankruptcy was one of the most modern in Latin America. However, to this date this law is rarely applied and the idea of «punishing» a debtor for reaching insolvency is gradually abandoned. Modern insolvency systems seek to recover the debtor’s business, by reorganizing or restructuring the debts rather than liquidating the assets, as this contributes to the development of the economy and is under the belief that it is preferable to maintain a business or company that once was feasible, despite the financial problems that the business or the company may have encountered on the way.

The truth is that, when facing financial problems in these days, insolvency and bankruptcy provided by Law No. 154/69 are not considered attractive for both debtors and creditors, so we express our total approval to the insolvency reform initiative in Paraguay. In fact, the Bill of Law on Insolvency Resolution was submitted to the Congress, intended to keep those effective provisions of the current law but, at the same time, adding some modern touches to our bankruptcy system through the incorporation of new institutions.

Extrajudicial reorganization agreement, preservation of business through a sale under way, cross-border insolvency and mixed model of receivership are some of the new additions.

Extrajudicial reorganization agreement is a preliminary step before filing for insolvency and allows the debtor in a state of insolvency or with financial problems to agree with an absolute majority of the creditors, namely representing two thirds of the accountable capital, a debt restructuring. The Bill provides for the approval of this agreement before a judge and such approval has the same effects as an approved composition of creditors in insolvency proceedings.

Furthermore, as a novelty, the bankruptcy process incorporates the sale of assets as a unit or the company in working order, which allows a more efficient settlement. In some cases, selling the unit or the company is more practical than liquidating the assets separately. This inclusion demonstrates the trend towards reorganization and recovery of a feasible business even in bankruptcy cases.

In addition, Model Law on Cross-Border Insolvency by the United Nations Commission on International Trade Law is adopted. This section of the project basically seeks to regulate cooperation between the Paraguayan authorities and those of foreign countries, create a mechanism that provides greater legal security to trade and investment, guarantee the protection of the debtor’s assets, optimize their value and protect the interests of creditors and other interested parties. 

Perhaps one of the most expected inclusions is the mixed system of receivers established by the bill. Currently, there are only six receivers in charge of all bankruptcy proceedings in the country. This deficiency also contributes to make the bankruptcy proceedings an unattractive solution for both debtors and creditors. This project is focused in appointing independent professionals with degrees in Laws or Economics, Accounting or Business Administration, as receivers; to that end, a registry or list under responsibility of the Judicial Council and the General Bankruptcy Receivership should be set. This list would be valid for five years. 

The interesting part of this is the procedure established for the selection and appointment of receivers in bankruptcy proceedings. The same will be drawn by lot and the appointed receiver shall not participate in future draws until the list is closed, which ensures a good and balanced distribution of the work for receivers.

Undoubtedly these inclusions will strengthen the system in regard to insolvency cases in the country. Promulgation thereof will contribute for developing the economy and attracting new businesses in the country.

A «Bill of Law on Movable Guarantees» was recently filed before the Congress for consideration, based on the Model Law on Secured Transactions of the United Nations Commission on International Trade Law. The purpose of this Bill is to incorporate into national legislation the possibility of establishing pledges on movable assets to secure the obligations to be entered.

The purpose of the mentioned Bill is the possibility that movable assets can be used as a guarantee on contractual obligations, following in a certain way the real property rights model, regulated and provided under our current laws. If the Bill is approved, movable assets may be given as a guarantee of compliance with any obligation, own or belonging to others, regardless of the form of legal figure used, and would comprise, by way of example, conventional pledges, registered pledges, operations with warrants, sales with retention of title, trust in guarantee on movable assets, financial or commercial leasing, factoring operations and other similar operations.

Regarding the constitution of guarantees on movable assets, they would be implemented through a written guarantee agreement, provided that the secured debtor has rights over the asset to be encumbered or powers to encumber it, and must indicate (a) secured creditor and secured debtor; (b) the guaranteed obligation; (c) the encumbered asset and (d) the maximum amount for which the guarantee on a movable assets could be executed. Likewise, also the constitution of guarantees on future movable assets, which will be conditioned on the fact that the secured debtor actually acquires rights over such asset or is empowered to encumber it. It is an extensive Bill, it provides detailed information on the obligations to be guaranteed, movable assets subject to guarantee, amount of guaranteed obligation, enforceability against third-parties, among others.

The virtue of the Bill lays on the fact that, if approved, it would expand the range of available alternatives for assets that could be used to guarantee obligations. Several economic sectors will benefit from the possibility of using movable assets as a credit guarantee, for instance, to generate new capital, thus increasing their productivity, competitiveness and growth. We see that this bill, if passed and enacted, will specially contribute with MIPYMES, which usually do not have real estate assets to guarantee their obligations, therefore they would be able to offer movable assets that make up their capital as guarantee, namely machinery, vehicles, receivables, among others. Considering the benefits that would be brought into the legal system of guarantees in Paraguay if aforementioned Bill is approved, we can assure that its economic impact will be beneficial not only for MIPYMES, in all economic sectors, but for the population in general.

The purpose of the new Bill is to create a new type of company that, as indicated by its name, establishes a smaller number of formalities for its incorporation and operation than the companies already existing according to our laws. A novel characteristic shown by the EAS would be that they may be incorporated by a single natural or legal person, with the only limitation that single EAS cannot constitute or participate in other single EAS.
If the law is enacted, the Ministry of Finance should create an exclusive unit that will record, control and monitor the EAS. The EAS will acquire legal status upon being registered at the Ministry of Finance, so registration before the Public Registries will not be required. In addition, it must be registered in the Unified System for Opening and Closing Companies (SUACE), with a website where a registration form and a model for articles of incorporation will be published.

Share capital of the EAS will be represented by nominative shares, whether endorsable or not, ordinary or preferred, and the capital may be paid up in cash or with other assets. When the contribution is in money, payment is authorized to be made by delivering 50% of the payable amount at the incorporation act and the remaining 50% within the 2 (two) years upon the incorporation, and on the other hand, contributions in assets should be made at the moment of incorporation.

It should be noted that no minimum or maximum amount is set as share capital for this new type of company. The EAS will meet their obligations only with their equity assets, meaning that all members of the EAS should respond up to the amount of their respective contributions.
Regarding the EAS organization, the organizational structure of the company can be freely determined. Anyhow, it is established that the governing body of the company will include the EAS members and that a legal representative must be appointed. Nevertheless, the creation of an administrative body, as well as an audit body, will be optional.

EAS are required to keep the following corporate books:

• Minutes book of the governing body;
• Stock registration book;
• Minutes book of the administrative body (in case it is created);
• Journal book; and
• Inventory book.

Should you want to know more about this Bill, do not hesitate to contact us.