PNG logger fined K140million by Internal Revenue Commission

PHOTO: UN Migration

A major logging operator in Papua New Guinea has been charged a whopping K140 million (US$39 million) for tax evasion, Internal Revenue Commission (IRC) boss Sam Koim announced Monday.

Koim said IRC has imposed a substantial K140 million (US$39 million) tax assessment against a prominent logging operator (identity withheld) in Papua New Guinea for engaging in illicit tax evasion, specifically through transfer pricing.

This amended assessment (tax bill) is a direct outcome of an extensive transfer pricing audit conducted on the taxpayer.

This was revealed today by the Commissioner General Sam Koim when announcing the outcome of the first of more than twenty audits initiated since he took office.

The Commissioner General, in announcing this development, expressed, “The logging sector in PNG has long been suspected of involvement in tax evasion.

“Instead of turning a blind eye, we have initiated over twenty audits since I took office.

“Cross-border transfer pricing audits are intricate and time-consuming; hence it has taken some time. I am pleased to report that this is the first outcome of those audits.”

Transfer pricing tax evasion, in simple terms, refers to the act of manipulating the prices at which goods or services are transferred between related parties or companies within a multinational group.

The purpose of this manipulation is to reduce the taxable income of one party, typically in a high-tax jurisdiction, by artificially inflating expenses or lowering revenues.

By doing so, the company aims to shift profits to lower-tax jurisdictions, thereby evading or minimising its tax liabilities.

This practice can result in significant loss of tax revenue for governments and is considered illegal.

Based on a risk assessment on the taxpayer, the taxpayer had significant volumes of transactions with related parties, did not file Schedule Seven (International Dealing Schedule), was disclosing annual and historical losses in its income tax returns, and had not paid any corporate taxes in PNG for several years.

The main transfer pricing issue uncovered by the audit is that the taxpayer sold log species to related parties at prices lower than international market prices and thus reported a lower income than if its logs would have been sold at arm’s length. This means an under-pricing of log species sold by the taxpayer to related parties with significant pricing differences compared to market prices prior to and during the audit period, therefore not generating the fair amount of revenue and consequently not paying any corporate income tax.