Papua New GuineaPapua New Guinea

Legal ReferenceDivision 15 of the PNG Income Tax Act 1959 (as amended)

Legal ReferenceTax Circular 2011/2 – Transfer Pricing

It is referenced under the Transfer Pricing circular PNG has on the application of transfer pricing adjustments under Division 15 of the PNG Income Tax Act.

Legal ReferencePNG Income Tax Act 1959 (as amended) Section 4, Definition; International Agreements Act, Double Tax Treaty, Article 9 and Article 10 for one DTA; Taxation Circular 2011/ 2, paragraphs 13 to 17

The term “related parties” is not defined in the Income Tax Act, however, the act defines the term “associate”. Further references of the term associate are sited in PNG’s double tax treaty agreements under Article 9 “Associated Enterprises” for nine DTAs and Article 10 for one DTA. Taxation Circular 2011/2 provides guidance on the operation of Division 15 of the Income Tax Act and the Associated Enterprises Articles of Papua New Guinea’s double tax agreements. Paragraph 13 to 17 provides guidance on the definition of “associated enterprises” which extends to include “related party” or “related party dealings “as interchangeable term for “associated enterprises”.

Legal ReferenceTaxation Circular 2011/2, paragraphs 80 to 89

Taxation Circular 2011/2 provides guidance on acceptable methods for determining an arm’s length price. The Commissioner General endorsees the CUP, Resale Price, Cost Plus, TNMM and Profit Split as acceptable transfer pricing methods.

Legal ReferenceTaxation Circular 2011/2, paragraph 89

Paragraph 89 of the Taxation Circular 2011/2 endorses the use of the most appropriate method for the transfer pricing analysis. The Commissioner General would generally seek to use the most appropriate method in a given case depending on the facts and circumstances of the case and the extent and reliability of information on which to base a comparability analysis.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)
• Other (not selected)

• For controlled transactions involving commodities, the guidance contained in paragraphs 2.18-2.22 of the TPG is followed. (not selected)
• Domestic legislation mandates the use of a specific method for controlled transactions involving commodities (not selected)
• Other (selected)

TP Catalyst.

Legal ReferencePNG Income Tax Act 1959 (as amended), Division 15, section 197D, subsection 1– 4

Legal ReferencePNG Income Tax Act 1959 (as amended), Division 15, section 197A – 197G

The Commissioner General considers the guidance provided in the OECD Transfer Pricing Guidelines relevant and recommends that taxpayers follow such guidance.

Legal ReferencePNG Income Tax Act 1959 (as amended), Division 15, section 197A – 197G; PNG Income Tax Act 1959 (as amended), Section 68AD, sub-section 1– 4 and Division 10, sub-division A, Section 155M, sub-section 1-5; Taxation Circular 2011/2, paragraphs 244 to 248

Additional guidelines are provided in the Taxation Circular 2011/2 on Transfer Pricing.

Legal ReferenceSpecific provision on Management fees in the PNG Income Tax Act 1959 provides a cap on limiting the deduction

Legal ReferenceSpecific provision on Management fees in the PNG Income Tax Act 1959 provides a cap on limiting the deduction

PNG Income Tax Act 1959 contains a cap of 2% on turnover for the deductibility of management fees between related parties.

Legal ReferencePNG Income Tax Act 1959 (as amended), section 68AF limit on interest deductions (thin cap rules)

Legal ReferencePNG Income Tax Act 1959 (as amended), Division 15, section 197A – 197G; Division 3, section 68AF (1) – section 68AF (6) – Thin capitalisation; Division 10, sub-division A, section 155H(2) – Thin capitalisation

Legal ReferencePNG Income Tax Act 1959 (as amended), Division 15, section 197A – 197G; Taxation Circular 2011/2 Transfer Pricing guidance on interpretation of Division 15, paragraph 249

PNG general income tax legislation applies to cost contribution agreements and supporting guidance referencing the OECD TPG is provided in the Taxation Circular 2011/2.

Legal ReferenceIncome Tax Act 1959 (as amended) section 364, 365, 366; Income Tax Act 1959 (as amended) Part III Division 16A, section 198 to section 201B; Taxation Circular 2011/2 Transfer Pricing guidance on interpretation of Division 15, paragraphs 198 to 204; Schedule 7 – International Dealings Schedule of the company tax return

The Income Tax Act, sections 364, 365, 366, deal comprehensively with the information and documentation that are required from taxpayers. These provisions are also applicable to transfer pricing audits.

• Master file consistent with Annex I to Chapter V of the TPG (not selected)
• Local file consistent with Annex II to Chapter V of the TPG (not selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (selected)
• Other (specify) (not selected)

The Income Tax Act, section 201, requires that the CbCR shall be filed in a form identical to and applying the definitions and instructions contained in the standard template contained in Annex III of Chapter V of the OECD TPG, as modified periodically, and Annex III of the final report on BEPS Action 13.

Legal ReferencePapua New Guinea’s MAP Profile

Please refer to the OECD MAP Profile of Papua New Guinea.

• Rulings (not selected)
• Enhanced engagement programs (not selected)
• Advance Pricing Agreements (APA) (not selected)
• Unilateral APAs (not selected)
• Bilateral APAs (not selected)
• Multilateral APAs (not selected)
• Mutual Agreement Procedures (selected)
• Other (please specify) (not selected)

PNG follows the AOA in all its existing 11 tax treaties.