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Papua New Guinea – Transfer Pricing (2025)

Papua New Guinea’s domestic transfer pricing framework is primarily established in Division 15 of the Income Tax Act 1959 (as amended). The domestic regime explicitly references the Arm’s Length Principle through that division and is supplemented by Taxation Circular 2011/2 – Transfer Pricing, which provides guidance on the application of transfer pricing adjustments under Division 15. While the Income Tax Act does not include a literal statutory definition of “related parties,” the Act defines the term “associate” in Section 4; furthermore, Papua New Guinea’s double tax agreements (DTAs) contain an Associated Enterprises provision at Article 9 in nine DTAs and at Article 10 in one DTA. Taxation Circular 2011/2 (paragraphs 13 to 17) provides interpretative guidance on “associated enterprises,” extending the concept and treating “associated enterprises,” “related party” and “related party dealings” as interchangeable for the purpose of applying Division 15.

Arm’s Length Principle and the role of the OECD Guidelines

The domestic law incorporates the Arm’s Length Principle via Division 15 of the Income Tax Act 1959. Taxation Circular 2011/2 explicitly references and relies on the OECD Transfer Pricing Guidelines as the operational source of guidance for adjustments. The Commissioner General, through the Circular, endorses use of the OECD Guidelines and recommends taxpayers to follow the OECD guidance where relevant, in respect of methodology, comparability analysis and documentation.

The Income Tax Act 1959 lacks a comprehensive statutory definition of “related parties”; instead, it defines “associate” in Section 4 and relies on treaty provisions—Article 9 (“Associated Enterprises”) in nine DTAs and Article 10 in one DTA—for related-party concepts at the treaty level. Taxation Circular 2011/2 (paragraphs 13–17) elaborates the interpretation of “associated enterprises” and clarifies that in practice the terms “associated enterprises,” “related party” and “related party dealings” are treated as equivalent for applying Division 15. Regarding permanent establishments (PEs), PNG’s rules and practice address profit attribution and the profile states that Papua New Guinea follows the Authorised OECD Approaches (AOA) for attributing profits to PEs in all of its 11 existing tax treaties.

Methods and criteria for application

The legislation does not mandate a fixed list of methods in statutory form, but Taxation Circular 2011/2 (paragraphs 80 to 89) identifies and endorses the commonly accepted transfer pricing methods: Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM) and Profit Split. For method selection, the Circular states in paragraph 89 that the “most appropriate method” should be used depending on the facts and circumstances and on the extent and reliability of the information available for comparability analysis. There is no legally binding hierarchy of methods; the emphasis is on selecting the method most appropriate to the case in accordance with OECD guidance.

Comparability and ranges

Papua New Guinea largely follows the Chapter III guidance of the OECD Transfer Pricing Guidelines concerning comparability analysis. The jurisdiction does not show a preference for domestic comparables over foreign comparables. The tax administration uses confidential comparables via a database called TP Catalyst for assessment purposes. Domestic law allows the use of an arm’s length range and/or statistical measures to determine arm’s length remuneration. The law also requires comparability adjustments where appropriate: the Income Tax Act 1959 (as amended), Division 15, section 197D, subsections 1–4, set out the authority and requirement to make comparability adjustments when necessary.

Documentation and reporting

Documentation and information requirements are governed by the general information provisions in Sections 364, 365 and 366 of the Income Tax Act 1959, which apply to transfer pricing audits. Specific international reporting provisions appear in Part III Division 16A, sections 198 to 201B of the Income Tax Act, and in Taxation Circular 2011/2 (paragraphs 198 to 204). Papua New Guinea requires filing of a Country-by-Country Report (CbCR) consistent with Annex III of Chapter V of the OECD Guidelines and the final BEPS Action 13 report; Section 201 of the Income Tax Act requires that the CbCR be filed in a form identical to and applying the definitions and instructions contained in the standard Annex III template. In practice, there is also a Schedule 7 – International Dealings in the company tax return that functions as a specific transfer-pricing-related return or annex.

As to Master file and Local file consistent with Annexes I and II of Chapter V, the profile does not indicate a statutory obligation to prepare these files in the exact terms of the OECD Annexes: the questionnaire fields for master file and local file are not marked as mandatory in the source. The profile does not provide additional specifics on timing, language or procedural deadlines for preparing Master file or Local file beyond the formal CbCR format requirement; therefore, No se proporciona guía doméstica específica en el profile regarding formal timing and language requirements for Master/Local files beyond the CbCR format mandate.

Safe harbours / exemptions / materiality

The profile indicates that Papua New Guinea has no safe harbour rules for particular industries, taxpayer types or transaction types. No other simplification measures have been reported in the profile. No se proporciona guía doméstica específica en el profile regarding safe harbours or exemptions beyond general rules and guidance in Taxation Circular 2011/2.

APAs and MAP; procedures and timing

Regarding dispute prevention and resolution mechanisms, Papua New Guinea offers Mutual Agreement Procedures (MAP) and the profile refers readers to the OECD MAP Profile of Papua New Guinea for further detail. The profile does not list rulings, enhanced engagement programmes or Advance Pricing Agreements (APAs)—unilateral, bilateral or multilateral. Specific procedural timelines for MAP are not detailed in the profile and, since APAs are not reported as available, no domestic APA timing guidance is provided.

Penalties and other considerations

The profile indicates that the legislation does not establish specific transfer-pricing penalties or compliance incentives tied uniquely to transfer pricing documentation: the questionnaire response notes the absence of transfer-pricing-specific penalties in the law. Papua New Guinea allows taxpayers to make year-end adjustments. The tax administration does not apply secondary adjustments in practice (the profile indicates PNG does not make secondary adjustments). The law permits comparability adjustments under section 197D of Division 15, and the administration may re-characterise transactions or apply other adjustments consistent with the Arm’s Length Principle and the Taxation Circular 2011/2 and OECD guidance where appropriate. Although Division 15 includes Sections 197A–197G addressing intangibles, the profile states there is no specific domestic guidance on pricing transactions involving intangibles and that the Commissioner General considers the OECD Guidelines relevant and recommends their use by taxpayers.

Other legislative aspects

Intra-group services are addressed by the Income Tax Act 1959 (Division 15, Sections 197A–197G), Section 68AD (subsections 1–4) and Division 10 sub-division A, Section 155M (subsections 1–5), with additional guidance in Taxation Circular 2011/2 (paragraphs 244–248). There is a specific provision capping the deductibility of management fees between related parties at 2% of turnover. Financial transactions are subject to interest deduction limits (thin capitalisation) set out in Section 68AF (1)–(6) of the Income Tax Act and relevant provisions in Division 10 sub-division A, Section 155H(2); Division 15 is applied in related analyses. Cost contribution arrangements are governed by general income tax law and interpreted in Taxation Circular 2011/2 (paragraph 249).

Conclusion

Papua New Guinea’s transfer pricing framework is grounded in Division 15 of the Income Tax Act 1959 and developed by Taxation Circular 2011/2, which embeds the Arm’s Length Principle and expressly references the OECD Transfer Pricing Guidelines. The Commissioner General recognises the standard methods (CUP, Resale Price, Cost Plus, TNMM and Profit Split) and mandates selection of the most appropriate method based on facts and available information. The jurisdiction imposes international reporting obligations, notably mandatory Country-by-Country Reporting aligned with Annex III of the OECD, and maintains a Schedule 7 for international dealings in the corporate tax return. There are no reported safe harbours or APA programmes, but MAP is available; PNG applies the AOA for PE profit attribution in all its treaties. Special provisions exist for intra-group services (including a 2% of turnover cap on management fee deductibility) and for thin capitalisation/interest limitation. The tax administration uses a proprietary comparables database (TP Catalyst) and the law contemplates comparability adjustments under section 197D of Division 15.

References

OECD Transfer Pricing Country Profiles page: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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