29.Loss Carryovers
Losses incurred in Papua New Guinea are deductible from total income (including exempt income). Losses incurred in deriving foreign-source income may only be deducted from overseas income. Losses by a corporation are not deductible unless the corporation satisfies the Commissioner General of Internal Revenue that at all times during the year of income and the year in which the loss was incurred not less than 50% of its
shares were beneficially owned by the same persons. If this test is not met, the company must show that it carried on the same business during the year of loss recoupment as it carried on immediately prior to the change of shareholding that prevented it meeting the 50% continuity of shareholding test.
Losses of a primary production business may be carried forward indefinitely; other losses expire after seven years.30.Transactions
Between
Related Parties
There are comprehensive provisions for transactions between related parties and for non-arm-length international transactions, which may be adjusted to an arm-length basis.
31.Consolidation of Income
There is no provision for the filing of consolidated tax returns or transfer of losses by related corporations.
32.Tax Periods
The financial year for all taxpayers is January 1 to December 31, unless otherwise permitted by the authorities.
33.Other Matters
Deduction for Taxes Other than Income Tax. In computing the liability for income tax, businesses may deduct land and property taxes and various royalties and rentals. Stamp duty is treated as part of the cost of the goods acquired.
Inventory Valuation. For tax purposes, inventories may be valued at cost, market selling value, or replacement price. A different valuation method may be used for different items of the same class of inventory, at the onetime election of the taxpayer. Provisions for obsolescence or other special circumstances may be allowed with the consent of the
Commissioner General of Internal Revenue. Average cost or FIFO is generally used to determine cost. Other methods are available, but the LIFO method is not permitted unless it approximates actual physical flows.
Management Fees. Management fees paid by taxpayers operating in Papua New Guinea are deductible only to the extent of the greater of A or B, where A is the lesser of 10% of assessable income derived from the relevant part of the business or the same proportion of worldwide expenses as Papua New Guinea-source income bears to worldwide income,
and B is 15% of the total amount of allowable deductions attributable to the relevant part of the business, excluding management fees. The restriction on deductibility, which applies to payments by both residents and nonresidents, does not apply to payments between nonassociated persons or if the payment does not have the purpose or effect of avoiding tax or was to reimburse specific expenditures.
Bad Debts. General provisions for doubtful accounts are not
deductible. Bad debts are deductible only in the year they are actually written off. Any recovery after a debt had been written off is included in assessable income.
Provisions. Provisions for future liabilities (such as leave pay, staff gratuities, and warranties) are not deductible until the relative expenditure falls due for payment or is paid.
Compliance Reporting System. Local contractors in certain
industries are covered by a Tax Office registration system that does not require the deduction of any withholding tax. The affected industries are:
Building and construction Security
Road transport Cleaning and maintenance
Motor vehicle repairs Advertising
Joinery and cabinet making Entertainment
Architecture Consultancy
Engineering Sign writing
Surveying Professional services
Equipment hiring/leasing
The system also applies to non-work arrangements, such as equipment leasing, or other arrangements by which assessable income is derived.
Affected business must have a Certificate of Compliance, which is produced when entering into contracts with customers. Payors must file annual income-reporting statements if they make an eligible payment of K500 or more for one contract or if eligible payments for several contracts exceed K3,000 in the year of income in relation to one payee.
The payor is required to deduct a 10% withholding tax if the payee does not produce a certificate of compliance.
Club Fees and Leisure Facilities. Expenditures for club fees of a recreational nature are not deductible. Gifts of K50 or more to sporting bodies established in PNG and qualifying charitable
organizations are deductible. A gift of property also qualif
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