DTC are binding agreements between usually two States and thus are governed by Public International Law. In the majority of jurisdictions, the introduction of DTC into domestic legislation is required for having binding effects. Paraguay follows this legal principle, where ratified treaties are above national law – but below the Constitution – upon exchange of the ratification instruments. Nonetheless, this hierarchical order is not constitutionally binding in all countries, which leaves place for treaty overriding. A problem arises for Paraguay and its international DTC network, because the Constitution allows the conclusion of DTC only under the basis of reciprocity. Hence, tax treaty override from a treaty partner would inevitably lead to termination of the treaty due to lack of reciprocity. On the other hand, the Vienna Convention on the Law of Treaties (VCLT), which governs international conventions, provides milder alternatives to unilateral breaches and sees termination as the ultima ratio solution.
Should Paraguay be more royal than the king and terminate DTC when an isolated override occur? The unconditional-termination-policy demonstrates being ineffective from both an economic perspective, as well as from a reputational point of view. The economic analysis has been proved to be of outmost importance for the delimitation of the legal position that could be assumed in case of a tax treaty override. It provides the foundations for which a review of Article 180 CR and the consequent application of the VCLT are necessary for avoiding extensive and expensive damages to individual investors and the Paraguayan State.
The legal pragmatism shows itself as a justified reason to systematic and teleologically interpret the Paraguayan Constitution with the aid of the VCLT. Therefore, the continuity of DTC even when material and intentional overrides occur, or the signature of DTC with potential treaty-overriders are economically and constitutionally justified.