Papua New Guinea
The tax year is generally the period 1 January to 31 December; however, application may be made for a substituted tax year-end. These will normally be granted where the substituted tax year-end coincides with the accounting year-end of an overseas holding company. A company’s tax year does not need to be the same as its accounting period.
Papua New Guinea operates on a full assessment basis, and companies are required to lodge an annual CIT return showing the calculation of taxable income for the year. In addition, the return must provide detailed disclosures in relation to income derived and expenses incurred during the year of income.
A company must file a tax return by 28 February in the year following the year of income to which the return relates. However, the following automatic extensions apply where the company lodges its return through a registered tax agent:
- Five months from the taxpayer’s year-end for taxable returns and partnership returns.
- Six months from the taxpayer’s year-end for non-taxable returns.
Payment of tax
CIT is collected under a provisional tax system. Under this system, tax is paid in respect of a company’s current year profits (i.e. payments made in the year of income are in respect of income derived in the same year as the payment is due).
Provisional tax is assessed by the IRC based on the last return lodged. In the event that no tax was payable on the previous year’s return, the Commissioner General has the right to estimate the amount of tax based on any other information available.
Provisional tax is payable in three equal instalments by 90, 180, and 270 days after commencement of its income year. We understand these dates may be amended in early 2020 to be 120, 210, and 300 days after commencement of an income year.
Applications may be made to reduce provisional tax assessed if the tax due for the year in question is expected to be lower than the provisional tax assessed. Where estimated provisional tax is less than 75% of the income tax ultimately assessed, additional tax may be levied. Additional tax at a rate of 20% will be assessed, based on the difference between the estimate lodged and the provisional tax originally determined, or the actual tax payable, whichever is less. The Commissioner General has the discretion to require payment of additional tax.
Mining, petroleum, and gas companies are subject to advance payments tax, a system that broadly mirrors the provisional tax system in place for non-resource companies. The main difference for resource companies is they have the option to lodge an estimate of their taxable income for the year prior to 90, 180, and 270 days from the commencement of its income year, which the IRC uses to assess each advance payments tax instalment. We also understand these dates will be amended in 2020 to 120, 210, and 300 days after commencement of the taxpayers income year.
Following the lodgement of the CIT return, the IRC will serve a notice of assessment on the company. The balance of tax payable for a year of income, after the application of provisional tax (or advance payments tax in the case of a resource company) and other tax credits or rebates, is due to be paid within 30 days of the date of service of the notice of assessment.
Tax audit process
There is no prescribed tax audit process in Papua New Guinea, and resource constraints have historically limited the IRC's audit activities. However, the IRC has instigated a number of structural changes, including the creation of a Large Taxpayer Office and an enhanced audit and risk assessment function in order to support their review activities. They have also partnered with 'tax inspectors without borders' to conduct a number of audit programs.
Period for amendment of assessments
Where the IRC considers that a taxpayer made a full and true disclosure of all the material facts necessary for assessing their returns as originally assessed, the IRC may only amend an assessment that increases the tax liability of the taxpayer within three years from the date that tax became due and payable under the original assessment.
Where the IRC considers that a taxpayer did not make a full and true disclosure of all the material facts necessary for the assessment of their returns, and there has been an avoidance of tax, then:
- the IRC may amend any assessments previously issued to the participants if the IRC is of the opinion that the avoidance of tax was due to fraud or evasion (i.e. no time limit applies), or
- in cases of tax avoidance due to reasons other than fraud or evasion, the IRC may amend an assessment within six years from the date that tax became due and payable under the original assessment.
Topics of focus for the Internal Revenue Commission (IRC)
In late 2011, the IRC issued Taxation Circular No 2011/2, which provided guidance on transfer pricing matters in Papua New Guinea. The IRC continues to consider transfer pricing as an area of focus and has recently commenced targeted reviews of taxpayers with cross border transactions.
The IRC has indicated an increased focus on the effective collection of taxes and tax compliance through the implementation of a Standard Integrated Tax Accounting System (SIGTAS). The IRC has indicated that it is likely to replace SIGTAS at some stage before 2023.
Recent audit programs have also focused on employee-related taxes, and they have conducted data matching exercises alongside the immigration department targeting foreign employees and contractors.
The IRC has commenced reviews in relation to taxpayers' related party dealings as it looks to implement a number of BEPS initiatives in the coming years.