Worldwide transfer pricing reference guide 2014

Papua New Guinea
Taxing authority and tax law
Tax authority: Internal Revenue Commission (IRC)
Tax law: Division 15 of the Income Tax Act 1959 (the Act), Transfer Pricing: Determination of the taxable income of certain persons from
international transactions and Papua New Guinea’s (PNG) Double Tax Agreements.
Relevant regulations and rulings
IRC — Taxation Circular No2011/2 — Commissioner General’s interpretation and application of the Taxation Laws on Division 15 of ITA
1959 (the Circular).
The Commissioner General supports having an APA program operating in PNG and will be issuing guidelines shortly of the type of APA
program proposed for PNG and the circumstances in which taxpayers may be eligible for this arrangement.
OECD Guidelines treatment
The Circular acknowledges the OECD guidelines as well as guidance provided by the United Nations.
Although PNG is not a member country of the OECD, the OECD Guidelines are acknowledged as an important, influential document that
reflects unanimous agreement amongst the member countries that was reached after an extensive process of consultation with industry
and tax practitioners in many countries. The Circular states that the OECD Guidelines should be followed in the absence of guidance in
terms of the Circular, the provisions of Division 15 or the Double Tax Agreements entered into by PNG.
The Commissioner General considers the guidance provided on business restructures contained in Chapter IX of the OECD Guidelines to
be relevant and recommends that taxpayers follow the guidance in establishing arm’s length conditions in international agreements with
associated entities involving business restructures. Where appropriate, the Commissioner General will publish future guidance on
this issue.
Priorities/pricing methods
Division 15 and the Double Tax Agreements entered into by PNG do not prescribe any particular methodology for the purpose of
ascertaining an arm’s length consideration. Given that there is no prescribed legislative preference, the Commissioner General would
generally seek to use the most appropriate method as per the OECD Guidelines.
Transfer pricing penalties
The penalty, additional tax and offence provisions applicable in the event of default or omission in the completion of the tax return
or evasion of taxation contained in the Act stipulate a fine not less than PGK1,000 and not exceeding PGK 50,000 and, in addition,
the court may order the taxpayer to pay to the Commissioner General a sum not exceeding double the amount of income tax or dividend
(withholding) tax that would have been avoided if the statement in the return had been accepted as correct, and these will also apply
to default, evasion or omission relating to transfer pricing. The Act does not impose specific penalties in respect of non-arm’s length
pricing practices.
Penalty relief
Not applicable.
Documentation requirements
The general requirements of the Act require taxpayers to keep proper records relating to their transfer pricing. However, there is no
specific statutory requirement to prepare and maintain transfer pricing documentation.
Documentation deadlines
As a general rule, the Commissioner General considers that taxpayers should contemporaneously document the process they have
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