Papua New Guinea Tax Profile

Transfer Pricing Thin Capitalisation General Anti-avoidance Anti-treaty shopping The Commissioner has the power to reconstruct an international transaction for tax purposes in order to apply an arm's length consideration if the consideration for the supply or acquisition of property (or services) under an international transaction is less than / greater than the arm's length consideration. A transfer pricing ruling has been issued by the Internal Revenue Commission and details of transfer pricing methodology and documentation are required to be disclosed in the International Dealings Schedule of income tax returns. There are no safe harbour rules prescribed in the legislation. Thin capitalisation rules are applicable from 1 January 2013 for non-resource companies; comparable rules did already apply to resource companies in Papua New Guinea. Foreign Interest on debt in excess of the debt-to-equity ratio of two to one is not allowable. For mining and petroleum companies the amount of interest allowable is restricted to a debt-to- equity ratio of three to one. Financial institutions are currently exempt from thin capitalisation rules. Papua New Guinea has general anti-avoidance provisions that allow the tax authority to cancel the effect of any tax benefit that the taxpayer derived from an arrangement if it could be concluded that a person (not necessarily the taxpayer) entered into or carried out the arrangement for the sole or dominant purpose of enabling the taxpayer, or the taxpayer and other persons, to obtain a tax benefit. None Other specific anti-avoidance rules Rulings Specific anti-avoidance provisions exist to prevent accelerated deductions, excessive costs for depreciation deductions and non-arm's length charges for management expenses. A tax ruling system has recently been introduced which formalises the issue of public Tax Circulars on matters of administrative practice, procedural instruction and interpretation of tax laws. Tax Agents (and other members of the public) are able to submit topics of interest for the possible issue of a public Tax Circular. Topics covered to date include transfer pricing, distinguishing employees versus independent contractors, imposition and remission of penalties and the application of the director penalty regime to Salary or Wages Tax and Goods and Services Tax. There is no formal system in place for private rulings. It is possible to obtain a non-binding opinion from the Commissioner on a particular tax issue and these opinions are not made public. The timeframe for obtaining these types of opinions vary from about 3 months to over 12 months. Intellectual Property Incentives KPMG None © 2015 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 4

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