Analysis of the determination of the source and the implication of the permanent establishment of digital services

Abstract

Digitization in the economy imposed the challenge on governments to adapt tax legislation to a digital economy that is radically advancing in the world. The incidences in the market of these new electronic business models mean that the Tax Administrations have as a result the study of new taxes that directly affect digital platforms. It can be said that the Latin American economies are efficiently addressing the fiscal challenges obtained by the digitalization of the economy, which will undoubtedly contribute to the stability of the international tax system. Therefore, it is intended that multinational companies offer their multiple digital activities in the region and obtain significant income in several countries simultaneously, without having a tax residence in them, have and comply with tax obligations. Paraguay enters the process by executing international taxation through Law 6380/2019, which establishes the tax treatment applicable to income from digital service provision activities carried out by non-residents and used in the country; it is based on the premise of the elements that make up the permanent establishment according to tax regulations; the general aspects of digital services are examined and the incidents of the source and the implication of the permanent establishment of digital services in Paraguay by 2021 are established. It is concluded that the Paraguayan TA has suffi- cient power to dictate acts necessary for the application, administration, collection of taxes, to date it has established a position regarding the withholding of VAT and INR from the source, there is still a long way to go to face all the aspects that intervene in the composition of digital services, fiscal control is necessary to minimize evasion, therefore, increase collection.