Papua New Guinea
Companies are assessed for CIT separately, regardless of whether they are part of a group of associated or related companies. Losses of one company within a group cannot be offset for tax purposes against the profits of another company within that group.
The Companies Act allows two or more companies to amalgamate and continue as one, and provisions are in place to allow this to occur without any adverse CIT consequences.
Papua New Guinea has transfer pricing provisions that require transactions with foreign affiliates to be conducted on an arm's-length basis. Disclosure of such transactions is done through an international dealings schedule (IDS). Corporate taxpayers (including companies, superannuation funds, and unit trusts) that have transactions or dealings with international affiliates that exceed PGK 100,000 in an income year or have aggregate loan balances with international affiliates in excess of PGK 2 million at any time during an income year are required to prepare and lodge an IDS with their income tax return for that year of income.
Thin capitalisation rules apply to prevent taxpayers from incurring excessive levels of debt. By excessively gearing their investments, companies are able to claim greater tax deductions through the interest expense charged on such debt. Thin capitalisation rules typically feature a debt-to-equity ratio that governs the ratio by which companies can borrow from related parties relative to their equity. Any interest charged on debt that exceeds this ratio will not be deductible for CIT purposes.
Papua New Guinea's thin capitalisation rules apply a debt-to-equity ratio of 2:1 for all PNG companies. Note that the 2020 Budget amended the ratio of resources companies from 3:1 to 2:1 effective immediately. We understand that the intention of parliament was that this reduction would apply from 1 January 2021; however, legislative amendments will be required in 2020 to give effect to this intent.
These rules do not apply to licensed financial institutions and do not apply to interest paid under domestic debt for non-resource companies. If the ratio is breached, a proportion of the interest on foreign debt will be denied as a tax deduction. For resource companies, a proportion of interest on all debt will be denied.
Controlled foreign companies (CFCs)
Papua New Guinea does not have CFC rules.