CONVENTION BETWEEN THE KINGDOM OF SPAIN AND THE REPUBLIC OF PARAGUAY TO AVOID DOUBLE IMPOSITION AND TO PREVENT TAX EVASION OR ELUSION ON RENT TAX
The Kingdom of Spain and the Republic of Paraguay,
Desiring to promote their economic relations by stimulating investment and strengthening their cooperation in tax matters,
Intending to conclude an agreement to eliminate double taxation in relation to income taxes without generating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including avoidance strategies through the misuse of the agreements by third parties),
Have agreed as follows:
CHAPTER I
Scope of the Convention
Article 1. Persons covered.
1. This Convention applies to persons resident in one or both Contracting States.
2. For the purposes of the application of this agreement, an element of income, profit or gain obtained through an entity considered fiscally transparent, in accordance with the domestic rules of any of the Contracting States, shall be deemed to be received by a resident of a Contracting State to the extent that that element is considered as income, profit or gain of a resident for the purposes of the tax law of that Contracting State.
The entity referred to in the preceding paragraph shall be constituted or organised:
(a) In any of the Contracting States; or
(b) in a State which has in force an agreement containing provisions for the exchange of tax information with the Contracting State from which the income, profit or gain is derived. In this case, that element of income, profit or gain shall only be able to access the benefits of the agreement if, in addition to the requirements set out above, that element of income, profit or gain is considered as the income of the beneficiaries, partners or members of that entity in application of the tax laws of the State in which the entity is incorporated.
This provision may in no way be interpreted as restricting the tax powers of a Contracting State vis-à-vis its residents.
Article 2. Taxes covered.
1. This Convention applies to income taxes payable by each of the Contracting States, their political subdivisions or their local entities, whatever the system of their levy.
2. Income taxes are those that tax all or any part of the income, including taxes on earnings arising from the disposal of movable or immovable property, taxes on the amount of wages or salaries paid by enterprises, as well as taxes on capital gains.
3. The current taxes to which this convention applies are, in particular:
(a) In Paraguay:
i. Personal Income Tax;
ii. Business Income Tax;
(iii) Dividends and Utilities Tax;
(iv) Non-Resident Income Tax;
(hereinafter referred to as the Paraguayan tax).
(b) In Spain:
i. The Income Tax of Physical Persons;
(ii) corporation tax;
(iii) Non-Resident Income Tax;
(hereinafter referred to as ‘the Spanish tax’).
4. The Convention shall also apply to taxes of an identical or similar nature which are established after the signature of the Convention and which are added to or replaced by the present ones. The competent authorities of the Contracting States shall communicate to each other any amendments made to their respective tax laws.
CHAPTER II
Definitions
Article 3. General definitions.
1. For the purposes of this convention, unless the context of the convention indicates a different interpretation:
(a) The term “Paraguay” means, in a geographical sense, the territorial extent over which the State exercises its sovereignty or jurisdiction in accordance with international law and national law;
(b) the term ‘Spain’ means the Kingdom of Spain and, used geographically, means the territory of the Kingdom of Spain, including airspace, its internal waters, its territorial sea and areas outside its territorial sea in which, under international law and under its domestic law, the Kingdom of Spain exercises or may exercise in future jurisdiction or rights of sovereignty over the seabed, its subsoil and superjacent waters, and its natural resources;
(c) the words ‘one Contracting State’ and ‘the other Contracting State’ mean Paraguay or Spain, depending on the context;
(d) the term ‘person’ includes natural persons, companies and any other grouping of persons;
(e) the term 'company' means any legal person or any entity which is considered a legal person for tax purposes;
(f) the term ‘enterprise’ applies to the pursuit of any economic activity;
(g) the terms ‘undertaking of a Contracting State’ and ‘undertaking of the other Contracting State’ mean, respectively, an undertaking operated by a resident of a Contracting State and an undertaking operated by a resident of the other Contracting State;
(h) 'international traffic' means any transport carried out by a ship or aircraft operated by an undertaking whose effective head office is situated in a Contracting State, except where the ship or aircraft is operated only between points situated in the other Contracting State;
(i) the expression ‘competent authority’ means:
i. In Paraguay, the Minister of Finance or his authorized representative;
ii. in Spain: The Minister of Finance and Civil Service or his authorized representative;
(j) The term 'national' means:
i. a natural person possessing the nationality of a Contracting State; and,
ii. a legal person, a company of persons (
partnership
) or association constituted in accordance with the law in force in a Contracting State;
(k) the term ‘economic activity’ includes the provision of professional services, as well as any other activity of an independent nature;
(l) the term 'pension scheme' means any scheme, fund, mutual fund or other entity incorporated in Spain or Paraguay:
i. whose main purpose is to manage the right of persons in whose favour they constitute to receive income or capital for retirement, survival, widowhood, orphanhood or disability; and
ii. whose contributions may be reduced from the tax base of personal taxes.
2. For the purpose of the application of the Convention at any time by a Contracting State, any term or expression not defined in the Convention shall have, unless a different interpretation is given in its context, the meaning attributed at that time to it by the law of that State concerning the taxes which are the subject of the Convention, the meaning attributed by the tax law to which it would result from other branches of the law of that State prevails.
Article 4. Resident.
1. For the purposes of this Convention, the term ‘resident of a Contracting State’ means any person who, under the law of that State, is subject to taxation in that State by reason of his domicile, residence, seat of address or any other criterion of a similar nature, including also that State and its political subdivisions or local entities. This term does not, however, include persons who are subject to taxation in that State solely for the income they obtain from sources located in that State.
2. Where, under the provisions of paragraph 1, a natural person is resident in both Contracting States, his or her situation shall be resolved as follows:
(a) Such person shall be considered a resident exclusively of the State where he or she has permanent housing at his or her disposal; if he or she has permanent housing at his or her disposal in both States, he or she shall be considered a resident exclusively of the State with which he or she has closer personal and economic relations (centre of vital interests);
(b) If it is not possible to determine the State in which the person has the centre of his or her vital interests, or if he or she does not have permanent housing at his or her disposal in any of the States, he or she shall be considered a resident exclusively of the State in which he or she habitually lives;
(c) If he or she habitually lives in both States or does not live in either State, he or she shall be deemed to be a resident exclusively of the State of which he or she is a national;
(d) if he is a national of both States or is not a national of either State, the competent authorities of the Contracting States shall decide the case by mutual agreement.
3. Where under the provisions of paragraph 1 a person other than a natural person is a resident of both Contracting States, he or she shall be considered a resident exclusively of the State in which his or her place of effective management is located.
Article 5. Permanent establishment.
1. For the purposes of this Agreement, the term ‘permanent establishment’ means a fixed place of business through which an undertaking carries out all or part of its activity.
2. The term ‘permanent establishment’ includes, in particular:
(a) Management offices;
(b) branches;
(c) Offices;
(d) factories;
(e) workshops; and
(f) mines, oil or gas wells, quarries or any other place of extraction of natural resources.
3. A construction or installation work or project only constitutes a permanent establishment if its duration exceeds nine months.
4. Notwithstanding the previous provisions of this Article, it is considered that the term ‘permanent establishment’ does not include:
(a) The use of facilities for the sole purpose of storing, displaying or delivering goods or goods belonging to the enterprise;
(b) the maintenance of a warehouse of goods or goods belonging to the undertaking for the sole purpose of storing, displaying or delivering them;
(c) the maintenance of a deposit of goods or goods belonging to the undertaking for the sole purpose of processing by another undertaking;
(d) the maintenance of a fixed place of business for the sole purpose of buying goods or goods, or collecting information, for the enterprise;
(e) the maintenance of a fixed place of business for the sole purpose of carrying out any other business for the undertaking;
(f) the maintenance of a fixed place of business for the sole purpose of carrying out any combination of the activities referred to in subparagraphs (a) to (e),
provided that such activity or, in the case of sub-paragraph (f), the whole activity of the fixed place of business is auxiliary or preparatory.
4.1 Paragraph 4 shall not apply to a fixed place of business which an undertaking uses or maintains if that undertaking or another closely related undertaking engages in economic activities in the same place or in another place in the same Contracting State; and
(a) One of these places is a permanent establishment of the closely linked undertaking or enterprise in accordance with this article; or
(b) the whole activity resulting from the combination of activities carried out by the two companies in the same place, or by the same undertaking or the closely linked undertaking in the two locations, is not preparatory or auxiliary,
provided that the economic activities carried out by the two companies in the same place, or by the same undertaking or the closely linked undertaking in the two locations, are complementary functions forming part of a cohesive activity.
5. By way of derogation from paragraphs 1 and 2, but subject to paragraph 7, where a person operates in a Contracting State on behalf of an undertaking and, in so doing, habitually concludes contracts, or habitually performs the principal role leading to the conclusion of contracts, which the undertaking routinely concludes without significant modification on its part, and such contracts are concluded:
(a) On behalf of the undertaking; or
(b) for the transfer of ownership or for the transfer of the use, of an asset owned or entitled to use by the enterprise; or
(c) for the provision of services by that undertaking.
Such an undertaking shall be deemed to have a permanent establishment in that State in respect of the activities carried out by that person for the undertaking, unless the activities of that person are limited to those referred to in paragraph 4 which, if carried out through a fixed place of business (other than a fixed place of business to which paragraph 4.1 applies), had not determined that that fixed place of business was to be considered a permanent establishment under the provisions of that paragraph.
6. Notwithstanding the above provisions of this Article, an insurance undertaking in a Contracting State shall be deemed to have, except for reinsurance, a permanent establishment in the other State if it collects premiums in the territory of that State or if it insures against risks situated in that State through a person other than an independent representative to whom paragraph 7 applies.
7. Paragraph 5 shall not apply where the person operating in a Contracting State on behalf of an undertaking of the other Contracting State engages in an economic activity in the State first mentioned as an independent agent and intervenes by the undertaking in the ordinary course of that activity. However, where a person intervenes exclusively or almost exclusively on behalf of one or more undertakings to which he or she is closely linked, he or she shall not be regarded as an independent agent within the meaning of this paragraph in relation to any of those undertakings.
8. The fact that a company resident of a Contracting State controls or is controlled by a company resident of the other Contracting State, or engages in economic activities in that other State (whether by permanent establishment or otherwise), does not in itself make any of these companies permanent establishment of the other State.
9. For the purposes of this article, a person or an undertaking is closely linked to an undertaking if, in the light of all relevant facts and circumstances, one has control over the other or both are under the control of the same persons or undertakings. In any event, a person or an undertaking shall be considered to be closely linked to an undertaking if one of them has, directly or indirectly, more than 50 per cent of the rights to participate in the profits of the other (or, in the case of one company, more than 50 per cent of the total right to vote and the value of the shares of the company or of the rights to participate in the capital of the company) or if a third person or undertaking has, directly or indirectly, more than 50 per cent of the rights to participate in the profits (or, in the case of one company, more than 50 per cent of the total right to vote and value of the shares of the company or of the rights to participate in the capital of the company) of the person and the undertaking or of the two undertakings.
CHAPTER III
Income taxation
Article 6. Income from immovable property.
1. Income from immovable property (including income from agricultural or forestry holdings) situated in the other Contracting State may be taxed in that other Contracting State.
2. The term ‘real property’ shall have the meaning attributed to it by the law of the Contracting State in which the property is situated. In any event, that term includes property attached to immovable property, livestock and equipment used on agricultural and forestry holdings, the rights to which private law provisions relating to real estate apply, the use of immovable property and the right to receive fixed or variable payments in exchange for exploitation, or the granting of exploitation, of mineral deposits, sources and other natural resources. Ships, vessels and aircraft shall not be regarded as immovable property.
3. The provisions of paragraph 1 are applicable to income derived from direct use, lease or shareholding, as well as from any other form of exploitation of immovable property.
4. Where ownership of shares or other rights directly or indirectly confers on the owner of such shares or rights the right to the enjoyment of immovable property, income derived from the direct use, lease or use in any other form of such right of enjoyment may be subject to taxation in the Contracting State in which the immovable property is situated.
5. The provisions of paragraphs 1, 3 and 4 also apply to income derived from the immovable property of an undertaking.
Article 7. Business profits.
1. The profits of an undertaking in a Contracting State may be taxed only in that State unless the undertaking carries out its business in the other Contracting State through a permanent establishment situated therein. If the undertaking does so, the profits of the undertaking may be taxed in the other State, but only to the extent that they are attributable to that permanent establishment.
2. Without prejudice to the provisions of paragraph 3, where an undertaking of a Contracting State carries out its business in the other Contracting State by means of a permanent establishment situated therein, in each Contracting State the profits it could have obtained from being a separate and separate undertaking carrying out the same or similar activities shall be attributed to that permanent establishment under the same or similar conditions and shall deal entirely independently with the undertaking from which it is a permanent establishment.
3. For the purpose of determining the benefit of the permanent establishment, the deduction of expenses incurred for the purposes of the permanent establishment shall be permitted, including management and general administrative expenses for the same purposes, whether incurred in the State in which the permanent establishment is located or elsewhere.
4. No profits shall be attributed to a permanent establishment by reason of the mere purchase of goods or goods by that permanent establishment for the enterprise.
5. For the purposes of the preceding paragraphs, the profits attributable to the permanent establishment shall be determined each year by the same method, unless there are valid and sufficient grounds for proceeding otherwise.
6. Where profits include income covered separately by other articles of this Agreement, the provisions of those articles shall not be affected by those of this Article.
Article 8. Shipping and air transport.
1. Profits from the operation of ships or aircraft in international traffic may be taxed only in the Contracting State in which the effective head office of the undertaking is situated.
2. For the purposes of this article:
(a) The term ‘benefits’ includes gross revenues directly derived from the operation of ships or aircraft in international traffic;
(b) the term 'exploitation of ships or aircraft' by an undertaking also includes:
i. Chartering or leasing of bareboats or aircraft;
ii. leasing of containers used to transport goods and goods;
iii. the sale of tickets or tickets for the provision of services related to international transport, whether for the company itself or for any other undertaking;
provided that such activities are auxiliary to the operation of ships or aircraft in international traffic and are carried out by the undertaking itself.
3. If the place of effective management of a shipping undertaking is on board a ship, it shall be deemed to be located in the Contracting State where the base port of the ship is located, or if there is no such base port, in the Contracting State of which the person operating the ship is resident.
4. The provisions of paragraph 1 are also applicable to profits from participation in a pool, joint holding or in an international operating body or agency.
Article 9. Associated enterprises.
1. When:
(a) An undertaking of a Contracting State participates directly or indirectly in the direction, control or capital of an undertaking of the other Contracting State; or
(b) the same persons participate directly or indirectly in the direction, control or capital of an undertaking of a Contracting State and of an undertaking of the other Contracting State,
and in either case the two undertakings are, in their commercial or financial relations, bound by accepted or imposed conditions which differ from those which would be agreed by independent undertakings, the profits which would have been obtained by one of the undertakings in the absence of such conditions, and which in fact have not been made because of them, may be included in the profits of that undertaking and may be taxed accordingly.
2. Where a Contracting State includes in the profits of an enterprise of that State - and consequently subjects to taxation - the profits on which an enterprise of the other State has been taxed in that other Contracting State, and that other State recognizes that the profits thus included are profits that would have been realized by the enterprise of the State concerned in the first place if the terms agreed between the two companies had been those agreed between independent companies, that other State shall make the adjustment that would result in the amount of the tax that has taxed those profits. The other provisions of this Convention shall be taken into account in determining such adjustment and the competent authorities of the Contracting States shall consult each other where necessary.
Article 10. Dividends.
1. Dividends paid by a company resident of one Contracting State to a resident of the other Contracting State may be taxed in that other State.
2. However, dividends paid by a company resident in a Contracting State may also be taxed in that State in accordance with its law, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax thus required may not exceed:
(a) 5 per cent of the gross amount of dividends, if the beneficial owner is a company holding directly at least 50 per cent of the company's capital that pays dividends for a period of 365 days comprising the day of payment of dividends (for the purposes of calculating this period, no account shall be taken of changes in ownership that could arise directly from a corporate restructuring, such as a merger or division, of the company that owns the shares or pays the dividends).
(b) 0 per cent if it is a pension fund resident of the other Contracting State.
(c) 10 per cent of the gross amount of dividends in other cases.
This paragraph does not affect the company's taxation of the profits from which dividends are paid.
3. The term ‘dividends’ within the meaning of this Article means the income from shares, shares or enjoyment bonds, parts of mines, parts of founders or other rights allowing participation in profits other than credit, as well as income subject to the same tax regime as income from shares or shares under the law of the State of which the distribution company is resident.
4. The provisions of paragraphs 1 and 2 do not apply if the beneficial owner of the dividends, resident of one Contracting State, carries out in the other Contracting State, of which the company paying the dividends is resident, an economic activity through a permanent establishment located there, and the share of the dividends is effectively linked to that permanent establishment. In such a case, the provisions of Article 7 apply.
5. Where a company resident of one Contracting State obtains profits or income from the other Contracting State, that other State may not require any tax on dividends paid by the company, except to the extent that such dividends are paid to a resident of that other State or the share generated by the dividends is effectively linked to a permanent establishment located in that other State, or subject the undistributed profits of the company to a tax on them, even if dividends paid or profits not distributed consist, in whole or in part, of profits or income from that other State.
6. Notwithstanding the other provisions of this Convention, where a company resident in one Contracting State has a permanent establishment in the other Contracting State, that other Contracting State may subject to taxation remittances of profits, or what is deemed to be such, transferred by the permanent establishment to the resident company of the other Contracting State mentioned first, but the tax thus required may not exceed 5 per cent of the gross amount.
Article 11. Interest.
1. Interest from one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, interest from one Contracting State may also be taxed in that State in accordance with its law, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax thus required may not exceed 5 per cent of the gross amount of interest.
3. By way of derogation from paragraph 2, interest from one Contracting State and paid to a resident of the other Contracting State may be subject to taxation in that other State only if the recipient agrees with the beneficial owner of the interest and:
(a) It is the State itself or the Central Bank, one of its political subdivisions, or local entities;
(b) The payer of the interest is the State from which it originates, or one of its political subdivisions, local authorities or public bodies;
(c) interest is paid on the basis of a loan, debt or credit owed to, or granted, guaranteed or insured by that State, or one of its political subdivisions, local authorities or export credit agencies;
(d) is a financial institution;
(e) interest is paid on account of a debt arising as a result of the sale on credit of any equipment, goods or service;
(f) is a pension fund approved for tax purposes by that State and the income of that fund is generally exempt from taxation in that State.
4. The term ‘interest’ within the meaning of this Article means income from claims of any kind, with or without a mortgage guarantee or a benefit-sharing clause of the debtor, and in particular income from public securities and income from bonds or bonds, including premiums and lots attached to such securities, as well as any other income subject to the same regime as income from capital provided by the tax legislation of the State from which the income comes. Penalizations for late payment are not considered interest for the purposes of this article.
5. The provisions of paragraphs 1, 2 and 3 do not apply if the beneficial owner of the interest, resident of one Contracting State, carries out in the other Contracting State, from which the interest derives, an economic activity through a permanent establishment located in that other State, and the credit generated by the interest is effectively linked to that permanent establishment. In such a case, the provisions of Article 7 shall apply.
6. Interest shall be deemed to come from a Contracting State where the debtor is a resident of that State. However, where the debtor of interest, whether resident or not of a Contracting State, has in a Contracting State a permanent establishment in respect of which the debt for which the interest is paid is incurred and which bears the burden thereof, such interest shall be regarded as originating in the State in which the permanent establishment is situated.
7. Where due to special relations between the debtor and the beneficial owner, or between them and third parties, the amount of interest in the light of the claim for payment exceeds that agreed by the debtor and the creditor in the absence of such relationships, the provisions of this article shall apply only to the latter amount. In such a case, the excess may be imposed in accordance with the law of each Contracting State, taking into account the other provisions of this Convention.
Article 12. Royalties.
1. Royalties or royalties from one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such royalties or royalties may also be subject to taxation in the other Contracting State and under the law of that State, but if the beneficial owner of the royalties or royalties is a resident of the other Contracting State the tax thus required may not exceed 5 per cent of the gross amount of such royalties or royalties.
3. The term royalties or royalties within the meaning of this article means the amounts of any kind paid for the use, or the granting of the use of copyrights, including cinematographic films and telefilms and recordings for radio or television broadcasting, patents, trademarks or trade marks, designs, plans, formulas or secret procedures, or for information relating to industrial, commercial or scientific experiences.
4. The provisions of paragraphs 1 and 2 do not apply if the beneficial owner of the royalties or royalties, resident of one Contracting State, carries out in the other Contracting State, from which the royalties or royalties come, an economic activity through a permanent establishment located in that other State, and the right or for which the royalties or royalties are paid is effectively linked to that permanent establishment. In such cases the provisions of Article 7 shall apply.
5. For the purposes of this article, royalties or royalties shall be deemed to come from a Contracting State where the debtor is a resident of that State. However, where the debtor of the royalties or royalties, whether or not resident in one of the Contracting States, has in a Contracting State a permanent establishment in respect of which the obligation to pay the royalties or royalties arises and are borne by that permanent establishment, the royalties or royalties shall be deemed to come from the State in which the permanent establishment is located.
6. Where, by reason of the special relations between the debtor and the beneficial owner of the royalties or royalties, or of which both have with third parties, the amount of royalties or royalties, in view of the use, right or information for which they are paid, exceeds that for which the debtor and beneficial owner would have agreed in the absence of such relationships, the provisions of this article shall apply only to the latter amount. In such a case, the excess amount may be imposed in accordance with the law of each Contracting State, taking into account the other provisions of this Convention.
Article 13. Capital gains.
1. Profits that a resident of one Contracting State obtains from the disposal of immovable property as defined in article 6 located in the other Contracting State may be taxed in that other State.
2. Gains from the disposal of movable property forming part of the assets of a permanent establishment held by an undertaking of one Contracting State in the other Contracting State, including gains from the disposal of that permanent establishment (either with the enterprise as a whole or with the enterprise as a whole), may be taxed in that other Contracting State.
3. Profits arising from the disposal of ships or aircraft operated in international traffic or movable property affected by the operation of such vessels or aircraft may be taxed only in the Contracting State in which the place of effective management of the undertaking is situated.
4. Profits that a resident of a Contracting State obtains from the disposal of shares or other rights of participation the value of which is derived directly or indirectly in more than 50 % of immovable property located in the other Contracting State may be taxed in that other State. The immovable property concerned in the course of the company's economic activity shall not be taken into account in the calculation of that percentage.
However, this subparagraph does not apply to profits arising from the disposal of shares of a company trading on a recognised securities market in one or both of the Contracting States.
By way of derogation from this paragraph, profits resulting from the disposal of shares in an anonymous listed Investment Company in the Real Estate Market (SOCIMI) may be taxed in Spain.
5. Gains arising from the disposal of shares or other rights which, directly or indirectly, grant the owner of such shares or rights the right to the enjoyment of immovable property situated in a Contracting State, may be subject to taxation in that State.
6. Profits arising from the disposal of any property other than those referred to in paragraphs 1, 2, 3, 4 and 5 may be taxed only in the Contracting State in which the transferor resides.
Article 14. Dependent personal services.
1. Without prejudice to articles 15, 17 and 18, salaries, wages and other similar remuneration obtained by a resident of a Contracting State on account of employment may be subject to taxation in that State only unless the employment is exercised in the other Contracting State. If the employment is thus exercised, the remuneration derived therefrom may be subject to taxation in that other State.
2. By way of derogation from paragraph 1, remuneration obtained by a resident of a Contracting State on account of employment in the other Contracting State may be taxed only in the State referred to above if:
(a) The recipient remains in the other State for a period or periods of not more than 183 days together in any twelve-month period beginning or ending in the fiscal year concerned; and
(b) remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and
(c) Remuneration is not borne by a permanent establishment held by the employer in the other State.
3. Notwithstanding the preceding provisions of this Article, remunerations earned on account of employment on board a ship or aircraft operated in international traffic may be taxed in the Contracting State in which the effective head office of the undertaking is situated.
Article 15. Remuneration as advisers and directors.
Fees and other remunerations obtained by a resident of a Contracting State as a member of a Board of Directors of a company resident of the other Contracting State may be taxed in that other State.
Article 16. Entertainers and sportspersons.
1. By way of derogation from Articles 7 and 14, any income which a resident of a Contracting State obtains from the exercise of his personal activity in the other Contracting State as a performer, theatre, cinema, radio or television actor, or musician, or as an athlete, may be subject to taxation in that other State.
2. Notwithstanding the provisions of Articles 7 and 14, where the income derived from the personal activities of the performing artists or sportsmen, in that capacity, is attributed not to the performer himself or to another person, such income may be subject to taxation in the Contracting State where the activities of the performing artist or sportsman are carried out.
3. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, income obtained by an artist or sportsman shall be exempt from taxation in the Contracting State in which such activities are carried out where they are wholly or partly financed by public funds of either of the two States or of both States or are carried out under a cultural partnership agreement between the Contracting States.
Article 17. Pensions.
1. Without prejudice to Article 18(2), pensions and similar remuneration paid to a resident of a Contracting State on account of previous employment may only be taxed in that State.
Article 18. Government service.
1. (a) Salaries, salaries and other similar remuneration paid by a Contracting State or by one of its political subdivisions or local entities to a natural person for services rendered to that State or to that subdivision or entity may only be subject to taxation in that State.
(b) Such salaries, salaries and similar remuneration may, however, be subject to taxation in the other Contracting State only if the services are provided in that State and the natural person is a resident of that State who:
i. Is a national of that State; or
ii. has not acquired the resident status of that State only to provide the services.
2. (a) Notwithstanding paragraph 1, pensions and other similar remuneration paid by a Contracting State or by one of its political subdivisions or local entities, either directly or from constituted funds, to a natural person on account of services rendered to that State or to that subdivision or entity, may only be subject to taxation in that State.
(b) Such pensions and similar remuneration may, however, be subject to taxation in the other Contracting State only if the natural person is a resident and a national of that State.
3. The provisions of Articles 14, 15, 16 and 17 apply to salaries, salaries, pensions and other similar remuneration paid for services rendered in the context of an economic activity carried out by a Contracting State or by one of its political subdivisions or local authorities.
Article 19. Students.
The amounts received to cover the costs of maintenance, study or practical training by a student or a trainees who is, or was, immediately before arriving in a Contracting State, resident of the other Contracting State and who is in the State referred to first for the sole purpose of continuing his studies or practical training, may not be subject to taxation in that State provided that they come from sources outside that State.
Article 20. Other income.
1. The income of a resident of a Contracting State, whatever its source, not referred to in the previous articles of this Convention, shall be subject to taxation only in that State.
2. Paragraph 1 does not apply to income, other than that derived from immovable property within the meaning of Article 6(2), where the beneficiary of such income, resident of a Contracting State, carries out an economic activity in the other Contracting State through a permanent establishment situated in that other State, and the right or for which the income is paid is effectively linked to that permanent establishment. In such a case, the provisions of Article 7 apply.
CHAPTER IV
Methods for elimination of double taxation
Article 21. Elimination of double taxation.
1. In Paraguay, double taxation shall be avoided either in accordance with the provisions of its domestic legislation or in accordance with the following provisions, which are subject to Paraguay ' s domestic legislation:
(a) Where a resident of Paraguay obtains income which, under the provisions of this agreement, may be taxed in Spain, Paraguay shall permit:
i. The deduction of the income tax of that resident equal to the income tax paid in Spain;
(ii) the deduction of corporation tax actually paid by the company which distributes the dividends corresponding to the profits from which the dividends are paid, in accordance with its domestic law.
However, this deduction may not exceed the part of the income tax, calculated before the deduction, corresponding to the income that may be taxed in Spain.
(b) Where, under any provision of this agreement, the income obtained by a resident of Paraguay is exempt from taxes in Paraguay, Paraguay may, however, take into account the exempt income in calculating the tax on the rest of the income of that resident.
2. In Spain, double taxation shall be avoided either in accordance with the provisions of its domestic law or in accordance with the following provisions, subject to Spanish domestic law:
(a) When a resident of Spain obtains income which, under the provisions of this agreement, may be taxed in Paraguay, Spain shall permit:
i. The deduction of the income tax of that resident equal to the income tax paid in Paraguay;
(ii) the deduction of corporation tax actually paid by the company which distributes the dividends corresponding to the profits from which the dividends are paid, in accordance with its domestic law.
However, such deduction may not exceed the part of the income tax, calculated before the deduction, corresponding to the income that may be taxed in Paraguay.
(b) Where under any provision of this agreement the income obtained by a resident of Spain is tax-exempt in Spain, Spain may, however, take into account the exempt income in calculating the tax on the rest of the income of that resident.
CHAPTER V
Special provisions
Article 22. Non-discrimination.
1. Nationals of one Contracting State shall not be subject in the other Contracting State to any taxes or obligations relating thereto which are not or are more burdensome than those to which nationals of that other State who are under the same conditions, in particular with regard to residence, are or may be subject. Notwithstanding Article 1, this provision shall also apply to persons who are not residents of one or any of the Contracting States.
2. Permanent establishments held by an undertaking of one Contracting State in the other Contracting State shall not be subject to taxation in that State in a less favourable manner than undertakings of that other State carrying out the same activities. This provision may not be interpreted as obliging a Contracting State to grant to residents of the other Contracting State the personal deductions, reliefs and tax reductions it grants to its own residents in view of their marital status or family burdens.
3. Unless the provisions of Article 9(1) of Article 11(7) or Article 12(6) apply, interest, royalties or other expenses paid by an undertaking of a Contracting State to a resident of the other Contracting State shall be deductible to determine the profits subject to taxation of that undertaking under the same conditions as if they had been paid to a resident of the State referred to first.
4. Undertakings of a Contracting State whose capital is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State shall not be subject in the State referred to above to any tax or obligation relating thereto which is not or is more burdensome than those to which other similar undertakings of the State referred to in the first instance are or may be subject.
5. Notwithstanding Article 2, the provisions of this Article apply to all taxes irrespective of their nature or name.
Article 23. Mutual agreement procedure.
1. Where a person considers that the measures taken by one or both Contracting States involve or may entail for him an imposition which is not in conformity with the provisions of this Convention, irrespective of the remedies provided for by the domestic law of those States, he may submit his case to the competent authority of the Contracting State of which he is resident or, if Article 22(1) applies, to that of the Contracting State of which he is a national. The case must arise within three years of the first notification of the measure involving an imposition not in accordance with the provisions of the convention.
2. The competent authority shall, if it finds the complaint well founded and if it cannot in itself reach a satisfactory solution, make every effort to resolve the matter through an amicable agreement with the competent authority of the other Contracting State in order to avoid an imposition which does not comply with this Convention. The agreement shall apply irrespective of the time limits laid down by the national law of the Contracting States.
3. The competent authorities of the Contracting States shall endeavour to resolve any difficulties or doubts arising from the interpretation or application of the Convention by means of an amicable agreement. They may also agree to try to avoid double taxation in cases not covered by the convention.
4. The competent authorities of the Contracting States may communicate directly with each other in order to reach agreement within the meaning of the preceding paragraphs. Where it is considered that this agreement may be facilitated by an oral exchange of views, it may be carried out through a committee composed of representatives of the competent authorities of the Contracting States.
5. When:
(a) Pursuant to paragraph 1, a person has referred his case to the competent authority of a Contracting State on the grounds that the measures taken by one or both Contracting States entail an imposition not in accordance with the provisions of this Convention; and
(b) the competent authorities cannot agree to resolve the case in accordance with paragraph 2 within two years of the date on which the two competent authorities have received all the information required to deal with the case;
Any unresolved issue relating to that case shall be submitted to arbitration if the person so requests in writing. However, such arbitration may not take place when a court or administrative body of any of the Contracting States has previously ruled on such matters. Unless a person directly concerned rejects the amicable agreement giving effect to the arbitral decision, that decision shall be binding on both States and shall apply irrespective of the time limits provided for by the domestic law of the Contracting States. The competent authorities of the Contracting States shall determine how this paragraph is to be implemented by common agreement.
6. The provisions of paragraph 5 and this paragraph do not apply to:
(a) Cases involving the application of anti-abuse rules provided for in this convention or based on domestic legislation.
(b) cases in which the person directly affected by the case has been subject, by final decision resulting from judicial or administrative proceedings, to a penalty for tax fraud, wilful breach or gross negligence. For this purpose, penalties for tax fraud, wilful non-compliance or gross negligence shall be considered as those governed by the articles:
In the case of Spain:
i. 305 and 305 bis of the Criminal Code.
ii. 191, 192 and 193 of Law 58/2003 of 17 December, General Tax (the ‘General Tax Act’), provided that some qualification criterion referred to in Article 184 of Law 58/2003 is met.
iii. 18.13.2.o of Law 27/2014, of 27 November, on Corporate Tax, provided that some qualification criterion referred to in Article 184 of the General Tax Law is met. For this purpose, references in Article 184 of the General Tax Law to declarations shall be understood to be made to transfer price documentation.
By way of derogation from point (iii), it shall not be regarded as a penalty for tax fraud, wilful breach or gross negligence the penalty for infringement resulting from the submission of incomplete transfer price documentation where it does not seriously impede the quantification or determination of market value.
In the case of Paraguay:
i. 172 and 173 of Act No. 125/1991 or other amending or replacing it in the future.
ii. 261 "Tax Evasion" of Act No. 1.160/1997, as amended by Act No. 5.655/2016 or other amending or replacing it in the future.
(c) Transfer pricing cases involving income elements that are not subject to taxation in a Contracting State, either because they are not included in the tax base of that Contracting State or because they are exempted or are subject to a zero tax rate established solely under domestic tax legislation specific to that element of income of that Contracting State.
(d) In cases where, prior to the date on which the arbitral proceedings had otherwise been commenced, the competent authorities agree that they are not suitable for resolution by arbitration.
Article 24. Exchange of information.
1. The competent authorities of the Contracting States shall exchange information likely to be relevant to the application of the provisions of this Convention, or to the administration or application of national law relating to taxes of any kind or designation required by the Contracting States, their political subdivisions or local authorities, to the extent that such taxation is not contrary to the Convention. The exchange of information is not limited by Articles 1 and 2.
2. Information received by a Contracting State pursuant to paragraph 1 shall be kept secret in the same manner as information obtained under the domestic law of that State and shall only be communicated to the persons or authorities (including courts and administrative bodies) responsible for the management or collection of the taxes referred to in paragraph 1 of their effective application or the prosecution of the non-compliance with those taxes, or the determination of the remedies relating thereto. These persons or authorities shall use this information only for these purposes. They may disclose the information at public court hearings or in court judgements.
Notwithstanding the above provisions, information received by a Contracting State may be used for other purposes if, under the law of the requesting State, it may be used for such other purposes and the competent authorities of the State providing the information authorize such use.
3. In no case may the provisions of paragraphs 1 and 2 be interpreted as obliging a Contracting State to:
(a) Take administrative measures contrary to its legislation or administrative practice or those of the other Contracting State;
(b) to provide information which cannot be obtained on the basis of their own legislation or in the exercise of their normal administrative practice or that of the other Contracting State; and
(c) provide information revealing business, industrial, commercial or professional secrecy or an industrial process, or information the communication of which is contrary to public policy (ordre public).
4. If a Contracting State requests information pursuant to this Article, the other Contracting State shall use the measures to collect information available to it in order to obtain the information requested, even if that other State may not need such information for its own tax purposes. The above obligation is limited by paragraph 3 except where such limitations prevent a Contracting State from providing information solely because of the absence of national interest in it.
5. In no case shall the provisions of paragraph 3 be construed as allowing a Contracting State to refuse to provide information solely because it is held by banks, other financial institutions, or by any person acting in a representative or fiduciary capacity or because it relates to property rights of a person.
Article 25. Members of diplomatic missions and consular posts.
The provisions of this Convention shall not affect the tax privileges enjoyed by members of diplomatic missions or consular offices in accordance with the general rules of international law or under the provisions of special agreements.
Article 26. Limitation on profits.
1. This Convention shall not be construed as preventing a Contracting State from applying the provisions of its domestic legislation relating to the prevention of tax evasion and avoidance.
2. The benefits of this Convention shall not be deemed to be granted to a person other than the actual beneficiary of income from the other Contracting State.
3. This Convention shall not prevent the Contracting States from applying their internal rules relating to international tax transparency (Controlled Foreign Companies) or subcapitalisation or the rules to be established on them.
4. Notwithstanding the other provisions of this Convention, the benefits granted under this Agreement shall not be granted in respect of an income element where it is reasonable to conclude, taking into account all relevant facts and circumstances, that the instrument or transaction that directly or indirectly generates the right to receive that benefit has as its main purpose the acquisition of that benefit, unless it is determined that the granting of the benefit in such circumstances is in conformity with the object and purpose of the relevant provisions of this Convention.
5. As long as one of the Contracting States maintains a territoriality criterion in its tax system, where by application of the provisions of articles 6 to 20 of this Convention, that State has exclusive power of taxation and under that territoriality criterion an income is not considered to come from that State, that income may be taxed in the other State, as if the Convention had not entered into force.
6. (a) When:
i. An undertaking in one Contracting State obtains income from the other Contracting State and the State mentioned above first considers such income as income attributable to a permanent establishment held by the undertaking in a third State; and
(ii) the profits attributable to such a permanent establishment are exempt from taxation in the State referred to above;
The benefits of this Agreement shall not apply to any income element on which the tax required in that third State is less than 60 per cent of the tax which the State referred to above would have required in the first place on that income element if the permanent establishment was situated there. In such a case, any income to which the provisions of this paragraph apply shall be taxable under the domestic law of the other State, irrespective of the other provisions of the convention.
(b) The previous provisions of this subparagraph shall not apply if income from the other State derives from or is incidental to the performance of an economic activity through the permanent establishment (other than investment activity, management or mere holding of investments on behalf of the undertaking, unless it is a banking, insurance or securities activity carried out by a bank, insurance institution or securities agent, respectively).
(c) In the event that the benefits of this Convention are denied under the above provisions of this paragraph in respect of an income element obtained by a resident of a Contracting State, the competent authority of the other Contracting State may nevertheless grant such benefits in respect of that income element if, in response to a request by that resident, that competent authority determines that the granting of the benefits is justified in view of the reasons for which that resident did not meet the requirements of this subparagraph (such as the existence of losses). The competent authority of the Contracting State to which the request referred to in the preceding sentence is addressed shall consult with the competent authority of the other Contracting State before accepting or refusing the request.
CHAPTER VI
Final provisions
Article 27. Entry into force.
1. This Convention shall enter into force on the 90th day after the date of the last notification, by which the Contracting States shall communicate in writing and through diplomatic channels, the completion of the constitutional and legal formalities necessary for its validity.
2. This Convention shall have effect:
(a) In respect of taxes required by reference to a fiscal year, for fiscal years beginning on or after 1 January of the year following the year in which the agreement enters into force;
(b) in respect of taxes which are not required by reference to a tax year for taxes required from 1 January inclusive of the year following the year in which the agreement enters into force;
(c) in the remaining cases, on the date on which the convention enters into force.
Article 28. Termination.
This Convention shall remain in force for an indefinite period, unless one of the Contracting States notifies the other, in writing and through diplomatic channels, at least six months before the end of any calendar year, after a period of 5 (five) years from the date on which the Convention enters into force, of its intention to denounce it. In such a case, the Convention shall cease to have effect:
(a) In respect of taxes required by reference to a fiscal year, for fiscal years beginning from the end of that calendar year;
(b) in respect of taxes not required by reference to a fiscal year, for taxes required since the end of that calendar year;
(c) in the remaining cases, after the end of that calendar year.
In faith, the signatories, duly authorized to do so, have signed this Convention.
Done in duplicate at Santo Domingo on 25 March 2023 in the Spanish language.
For the Kingdom of Spain,
José Manuel Albares Well,
Minister for Foreign Affairs, European Union and Cooperation
For the Republic of Paraguay,
Julius Caesar Arriola,
Minister for Foreign Affairs
Protocol
At the time of signing the agreement between the Kingdom of Spain and the Republic of Paraguay to prevent double taxation and to prevent tax evasion or avoidance of income taxes, the signatories have agreed on the following provision which forms an integral part of the agreement:
The comments of the OECD Model Tax Convention on Income and Heritage, in its 2017 version, will guide the interpretation of the provisions set out in Articles 5 (permanent establishment) and 7 (business benefits) of this agreement.
In faith, the signatories, duly authorized to do so, have signed this Convention.
Done in duplicate at Santo Domingo on 25 March 2023 in the Spanish language.
For the Kingdom of Spain,
José Manuel Albares Well,
Minister for Foreign Affairs, European Union and Cooperation
For the Republic of Paraguay,
Julius Caesar Arriola,
Minister for Foreign Affairs
* * *
This Convention shall enter into force on 14 October 2024, 90 days after the date of the last notification by which the Contracting States notified themselves, in writing and through diplomatic channels, of the completion of the necessary internal constitutional and legal formalities, as provided for in Article 27 thereof.
Madrid, July 18, 2024.–The Technical General Secretary, Rosa Velázquez Álvarez.