Cambodia
Transfer Pricing Requirements
“2023 marks the fifth-year anniversary of the introduction of the transfer pricing regime in Cambodia. With recent changes in local transfer pricing regulations, tax audit practices, and documentation, now more than ever, you need to have the right advisor to reduce tax audit risk associated with related party transactions”.
General Overview of Transfer Pricing Regulations in Cambodia
Hybrid TP Global work exclusively with DFDL’s specialist transfer pricing team in Cambodia to combine
international experience and dedicated local market knowledge. This allows us to provide our clients
tailored documentation and audit defense assistance using international best practice at local market
prices. Our team has extensive experience with transfer pricing strategy, transfer pricing compliance
documentation, transfer pricing audit defense, and with drafting related commercial agreements.
What transactions fall under Cambodia’s transfer pricing regime?
Any self-assessment taxpayer in Cambodia that enters a related party transaction will fall under the scope of Cambodia’s transfer pricing regime. Two enterprises are considered be related if:
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There is commonality arising from family connections; or
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One enterprise directly or indirectly possesses at least 20% of the dividend in the direct capital of the other enterprise or has voting rights in the taxpayer’s Board of Directors; or
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A third-party enterprise or an individual possesses directly or indirectly at least 20% of the dividend in the direct capital of both enterprises or has voting rights in the Board of Directors of both enterprises.
Cambodia’s transfer pricing regime applies to both cross-border and domestic related party
transactions. The most common type of related party transactions in Cambodia include loans, purchase
and sale of finished goods, purchase of raw materials, leases, royalty expenses and technical and
management service expenses.
Who is the enforcing regulatory body for transfer pricing in Cambodia?
The tax authority “General Department of Taxation” is responsible for transfer pricing audits. Based on current practice transfer pricing assessments may be addressed by the Large Taxpayer Department or Tax Branch under a Limited Tax Audit or by the Enterprise Audit Department of the General Department of Taxation under a Comprehensive Tax Audit. The Transfer Pricing Bureau falls under the umbrella of the Enterprise Audit Department.
What is/are the primary domestic regulations in Cambodia?
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Have there been any recent changes impacting transfer pricing/related party transactions?
Instruction 10979 was issued on 25 May 2022 becoming effective immediately. Instruction 10979 outlines criteria for a potential exemption to the “Arm’s Length Principle” with respect to inbound and domestic Cambodian-related party loans and short-duration advances, including the supporting documentation required to potentially be entitled to the exemption. Read more here.
Does Cambodia utilize OECD Guidelines?
While Cambodia is not a member of the OECD, Prakas 986 is generally consistent with OECD guidance.
Has Cambodia implemented BEPS Action 13 within its domestic regulations or transfer pricing guidelines?
Cambodia currently only requires Local File Transfer Pricing Documentation under its domestic
regulations and transfer pricing guidelines. Prakas 986 is generally consistent with OECD BEPS Action 13, as it pertains to Local File Transfer Pricing Documentation as it pertains to Local File Transfer Pricing Documentation.
Transfer Pricing Documentation Requirements in Cambodia
From when is transfer pricing documentation a requirement in Cambodia?
Prakas 986 was issued on 10 October 2017. Generally, such a regulation becomes effective immediately
in Cambodia, however it has been verbally communicated in public by the General Department of
Taxation that transfer pricing documentation is expected for all financial periods ending from 1 January
2018.
How often does Local File Transfer Pricing Documentation require completion in Cambodia?
Local File Transfer Pricing Documentation should be prepared annually and be available upon request by
the General Department of Taxation.
Does each entity within a group in Cambodia require Local File Transfer Pricing
Documentation annually?
Yes, each entity in Cambodia with related party transactions should prepare and retain Local File Transfer Pricing Documentation annually. There is no exception allowing group preparation.
Does a Local Branch of a foreign company require Local File Transfer Pricing Documentation in Cambodia annually?
Yes, Local Branches of foreign companies are subject to the same requirements as other taxpayers if they have related party transactions.
Is there an exception in Cambodia for Small/Medium Enterprises?
There is no exception for Small/Medium Enterprise (SMEs) at this particular point. In practice SMEs are regularly scrutinized on related party transactions during tax audits.
Does the Local File Transfer Pricing Documentation require preparation in the local Khmer
language?
Currently Transfer Pricing Documentation is prepared and submitted in English language only. This is accepted by the General Department of Taxation.
Are there any other transfer pricing documentation requirements in Cambodia?
Yes, there is an annual requirement to submit an “annex” with a taxpayers annual “Tax on Income Return”, detailing each related party transacted with, related party transaction type and the Khmer Riel Value in the period the Tax on Income return is prepared for.
Does every single transaction require benchmarking or may the whole of entity benchmarking approach be used?
Generally, if a taxpayer has Local File Transfer Pricing Documentation whereby either their significant related party transactions have been subject to a benchmark analysis or a “whole of entity” benchmark analysis has been completed then the documentation will be considered compliant. However, as always, the level and relevancy of the analysis will determine the level of tax audit defense of the Local File Transfer Pricing Documentation.
Are any transactions which are subject to safe harbor exemptions, thus not requiring
economic/benchmarking analyses in line with the Arm’s Length Principle outlined in Prakas
986?
Theoretically, loans made to a Cambodian taxpayer qualify for an exemption under Instruction 10979 from 25 May 2022 onwards. Practice in this respect is still developing, thus it is not yet possible to determine whether this will apply to loans executed prior to 25 May 2022 or only loans executed on or from this date. For more information on fulfilling the documentation criteria to qualify for the exemption, please Read Here./?
There are no other safe harbor exemptions.