Transfer pricing - Cambodia

The acceptable methodologies for determining arm’s length pricing under the Prakas 986 are those endorsed by the Organization for Economic Co-operation and Development ('OECD') in the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The five methodologies are described below:

• Comparable Uncontrolled Price ('CUP'): compares the price charged for goods or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction.

• Resale Price ('RP'): determines the arm’s-length price by deducting an appropriate gross margin for the activities of the reseller from the actual resale price.

• Cost Plus ('CP'): determines by adding an appropriate markup to the cost of the product or service.

• Transactional Net Margin Method ('TNMM'): compares the net profit margin relative to an appropriate base (e.g. costs, sales, or assets) that a taxpayer realizes from a controlled transaction to an appropriate base. It is similar to the cost plus and resale price methods but at the net profit margin level.

• Profit Split Method ('PSM'): established transfer pricing by dividing the profits of a multinational company in a way that would be expected of independent companies in a joint-venture relationship. Independent companies would split the combined profit in proportion to the value of their respective contributions to the generation of profit in the transaction.

Prakas 986 is effective from the signing date of 10th October 2017, with no clear indication of the first fiscal year to be applied. However, considering many Cambodian enterprises have fiscal years ending 31 December and the annual corporate tax filing deadline is 3 months from fiscal year-end, the assumption is that both the transfer pricing form and documentation should be completed by 31 March 2018.

If the taxpayers fail to comply with the above requirements would lead to:

• Transfer pricing adjustments, which would result in additional tax.

• Tax penalties, which range from 10% to 40% of the additional tax for violations of the Law on Taxation ('LOT') according to Article 133 of the LOT, plus an interest charge of 1.5% per month on late payment.

• A lawsuit filed by the local tax administration against enterprises for charges stipulated under the LOT.

• In exclusion of other penalties, the tax administration will be revoked the tax compliance certificate or be evaluated on tax compliance all over again and will receive a penalty for the obstruction of the implementation of tax provisions the additional tax shall be 2,000,000 Riels (equal USD500) for a person or a taxpayer or a withholding agent under the real regime system of taxation or a government official and 500,000 Riels (equal USD125) for a taxpayer or a withholding agent under the simplified or estimated regime system of taxation