Papua New Guinea’s (PNG) transfer pricing laws refer to the Guidelines set by the Organization for Economic Co-operation and Development (OECD). Currently, the TP rules are incorporated in the Income Tax Act 1959, as amended, and Tax Circular 2011/2 on Transfer Pricing.
Arm’s Length Principle
Transfer pricing rules require that related parties must deal with each other as if they were unrelated, charging prices at a reasonable commercial value. If they don’t, tax authorities can adjust things to reflect what would have happened between independent parties.
Related Party Definition
The term “related parties” is not specifically defined in the Income Tax Act, but the law uses the term “associate,” which serves a similar purpose. The concept of “associate” is also used in the country’s double tax agreements, mainly under Article 9 titled “Associated Enterprises.” The terms “associated enterprises,” “related parties,” and “related party dealings” are treated interchangeably, offering practical guidance for applying transfer pricing rules.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Papa New Guinea are:
- Comparable Uncontrolled Price Method (hereinafter: CUP)
- Resale Price Method (hereinafter: RPM)
- Cost Plus Method (hereinafter: CPM)
- Transactional Net Margin Method (hereinafter: TNMM)
- Profit Split Method (hereinafter: PSM)
Papa New Guinea does not apply a hierarchy to the choice of the method. Instead, it follows the OECD TPG, which specifies that the most appropriate method can be used by comparing used prices or margins with arm’s-length prices.
Comparability Analysis
Papa New Guinea relies on the OECD TPG as the main reference for how to handle these matters. Chapter III of the OECD Transfer Pricing Guidelines regulations outlines key factors in the analysis, including comparability between controlled and uncontrolled transactions, accuracy and completeness of data, reliability of assumptions, and sensitivity to potential data deficiencies. This ensures that calculating arm’s length pricing involves a structured comparison between related-party and independent transactions.
While both domestic and foreign comparables are used to determine the arm’s length principle the PNG law does not have a preference between the two; but it does allow for the usage of secret comparables during auditing.
Documentation Requirements
In Papua New Guinea, there is no specific legal requirement to prepare formal transfer pricing documentation. However, under the Income Tax Act, taxpayers must maintain proper records, which also applies to transfer pricing matters.
Country-by-Country Reporting
Multinational Enterprise (MNE) Groups headquartered in PNG are required to file an annual country-by-country (CbC) report with the Internal Revenue Commission (IRC), and local subsidiaries or branch offices must also file unless exempt. The CbC report includes financial and operational data by jurisdiction, such as revenue, profit, taxes paid, employees, and assets, which the IRC uses to assess transfer pricing risks.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Mutual Agreement Program (MAP)
The MAP process is available in Papua New Guinea under its tax treaties to resolve problems including double taxation, such as those arising from transfer pricing adjustments. Taxpayers must make a written request to the Commissioner General of the Internal Revenue Commission. MAP can be utilized with domestic remedies. There is no application fee. Papua New Guinea does allow for corresponding adjustments, but, unlike other jurisdictions, does not currently allow for arbitration in the MAP process.
Penalties
In Papua New Guinea, if transfer prices are not set at arm’s length, the tax authority can raise the taxable income of the taxpayer. There are no specific penalties for transfer pricing violations, however, the general penalty provisions in the Income Tax Act will apply. These penalty provisions involve fines and additional tax to be payable as a consequence of defaults, omissions, or tax evasion, and also may relate to incorrect or missing transfer pricing information.
Taxation at a Glance
Papua New Guinea’s tax system is mainly based on the Income Tax Act 1959, the Goods and Services Tax Act 2003, the Stamp Duties Act 1952, the Excise Act 1956, and the Customs Act 1951, as supported by associated legislation and regulations.
The currency of Papa New Guinea is kina. The official name of the Papa New Guinea tax authority is the Internal Revenue Commission.
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 30% (resident), 48% (non-resident) |
VAT | 10% |
Withholding tax on dividends to non-residents | 15% |
Withholding tax on interest to non-residents | 15% |
Withholding tax on royalties to non-residents | 10/30% |
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