Within a year, the General Department of Taxation (GDT) collected more than $2 billion in tax revenue in 2018, surpassing 2017\u2019s collection by 13.37 percent. The rise was due to more awareness by taxpayers and the sheer grit of the tax department to raise the country\u2019s revenue.<\/p>\n
Amid Cambodia\u2019s transforming economic landscape, policies are being laid and amended to sustain its revenue in the long run. This includes Prakas 986, a directive on transfer pricing that involves related party transactions. The scheme outlines the arm\u2019s length principle, where related companies or subsidiaries must deal with each other and its parent in a similar fashion as non-related parties.<\/p>\n
\u201cThe deal must mirror the behaviour within the group. Parties must hypothesise that the pricing within the group is the same as it would be with independent parties. It is a simple concept but challenging to apply,\u201d says Steven Carey, managing director of corporate financial advisor Duff & Phelps LLC.<\/p>\n
A real push for transfer pricing happened in the past three to four years because of the view that tax payments had reduced. Transfer pricing being part of that, caused the entire tax system globally to breakdown. \u201cCompanies dealing with each other were undermining the tax base of certain jurisdictions particularly in developing countries, hence the need for a drastic change,\u201d Carey adds.<\/p>\n
At a transfer pricing talk organised by legal and tax consultancy DFDL Cambodia, Carey cites the case of Starbucks Corp\u2019s United Kingdom unit which brought the issue of transfer pricing to the front. Starbucks was allegedly paying high royalty for its trademark to Starbucks Netherlands, high purchase price for coffeebeans from Starbucks Switzerland, and a high interest loan in Luxembourg. Based on its profit and loss account, the combination of these transactions, stemming from alleged transfer pricing disparity meant that there was no profit left for Starbucks UK.<\/p>\n
\u201cPeople were upset that Starbucks was not contributing to the UK tax regime and began boycotting its stores. It became a real issue for Starbucks, eventually volunteering tax payments with the tax authority to settle the issue,\u201d Carey says.<\/p>\n
Safe harbour for SMEs<\/strong><\/p>\n In Cambodia, the prakas took effect in 2018 which requires taxpayers to declare related party transactions for that fiscal year ended December 31. Taxpayers are to submit its form with the annual corporate income tax returns by March 31, 2019.<\/p>\n From January to early March this year, taxpayers have agreed to pay $1 million to the government following transfer pricing audits, says Traing Lay, chief of General Department of Taxation advance pricing arrangement (APA) and transfer pricing bureau.<\/p>\n \u201cWe are using a soft approach for now as we conduct ongoing seminars to create awareness among taxpayers. We understand that most are still unsure of the impact on their business,\u201d Lay tells Capital Cambodia.<\/p>\n The government is considering accepting zero interest rate loans taken by small and medium enterprise (SME) taxpayers, provided the unit has one shareholder. \u201cIt is not official yet as we are still discussing. If it is issued, it would be considered a `safe harbour\u2019 for SMEs starting 2020,\u201d Lay says.<\/p>\n OECD-based prakas, trigger issues<\/strong><\/p>\n Based on the Organisation for Economic Cooperation and Development, the prakas specifies that related parties include family members and entities with more than 20 percent voting right or holding capital. It also explains that financial results\u2019 operating margin that fall between one percent and 12 percent is construed as arm\u2019s length transaction but this can be determined through a benchmark study of comparability for interest rate, royalty and management fee.<\/p>\n \u201cI agree we lack information in Cambodia for comparable data, so we allow taxpayers to look at the first stage of comparability locally, then regional, and if none exist still, we accept Asia but taxpayers must first show efforts in finding domestic comparables,\u201d says Lay.<\/p>\n Companies that inject capital by way of zero-interest loans from parent companies to raise capital must reason out its intention. It should be noted that some companies do this to avoid paying withholding tax.<\/p>\n \u201cWe\u2019ll consider whether to accept the interest rate based on loan, tenure, and future business plan information,\u201d he adds.<\/p>\n Sangeetha Amarthalingam<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Within a year, the General Department of Taxation (GDT) collected more than $2 billion in tax revenue in 2018, surpassing 2017\u2019s collection by 13.37 percent. <\/p>\n","protected":false},"author":3,"featured_media":1628,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[4],"tags":[300],"yoast_head":"\n