Government Clamps down on Corporate Veil – Corporate Firms pays more Taxes

A look into 2018 National Budget

1st December 2017

Currently, a “corporate veil” exists which does not allow the CG to collect the income tax from the company’s holding company or related companies even if it has been distributed as a dividend or transferred as a non-monetary asset to those group holding companies.

In this Budget, the Government will remove the “corporate veil” to make the parent (holding) company and other groups of companies liable for the tax liability incurred by the subsidiary company. This will allow the CG to collect tax distributed as dividends or transferred as a non- monetary asset to other Group companies in PNG or overseas.

This measure will be revenue positive in the medium to long term and is expected to be effective 1st January 2018.

There are cases where large corporations’ profits generated from business operations in PNG pay little or no income tax with profits paid over to its holding companies largely as dividend payments. The paying of the company’s cash as dividends in conjunction with the reduction in the company’s non-cash assets leaves the IRC unable to collect any outstanding tax liabilities from the company.

These large corporations may have a large tax liability and be stripped of all assets leaving the Commissioner General (CG) unable to collect income tax assessed to the company.

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