The Double Taxation Relief (Taxes on Income) (Papua New Guinea) Order 1991

Explanatory Note

(This note is not part of the Order)

The Convention with Papua New Guinea is set out in the Schedule to this Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Shipping profits are generally to be taxed only by the residence state of the shipping enterprise (Article 8). Profits from international air transport are to be taxed only by the residence state of the enterprise (Article 9). The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 10).

The rate of tax imposed in the country of source on dividends derived by a resident of the other country is normally not to exceed 17 per cent of the gross amount of the dividends (Article 11). The rate of tax imposed in the country of source on interest derived by a resident of the other country is not to exceed 10 per cent of the gross amount flowing to the other country. Certain categories of interest (e.g. interest paid to the Government of the other country) will be exempt from tax in the source country (Article 12). The rate of tax imposed in the source country on royalties is limited to 10 per cent where the beneficial owner is a resident of the other country (Article 13).

The rate of tax on technical fees arising in one country and paid to a resident of the other country is not to exceed 10 per cent of the gross amount, but if the recipient so chooses, the tax chargeable on the fees is to be calculated as if he had a permanent establishment in the source country, i.e. net of expenses (Article 14).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 15 and 16). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 17). Income derived from the activities of artistes and athletes may be taxed in the country in which those activites are performed (Article 18). Government service salaries are normally to be taxed by the paying government only (Article 20). Certain payments made to visiting students or business apprentices are, subject to certain conditions, to be exempt from tax in the country visited (Article 2 1). Occupational pensions and annuities are to be taxed only in the country of the taxpayer’s residence (Article 19).

Where income continues to be taxable in both countries credit will be given by the taxpayer’s country of residence for tax imposed by the other country. The credit to be given in the United Kingdom for tax imposed in Papua New Guinea includes credit for tax spared under certain provisions of Papua New Guinea law. In the case of dividends, the United Kingdom will give credit for underlying tax paid in Papua New Guinea where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the dividend paying company (Article 23).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 25) and for consultations (Article 26) and exchange of information (Article 27) between the taxation authorities of the two countries.

The Convention will enter into force when the legislative procedures in both countries have been completed, and will have effect in the United Kingdom from 1st April (in respect of corporation tax) and 6th April (in respect of income tax) in the following calendar year (Article 29). The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.