Article 18 of the Law on Taxation sets out the basic principles of Cambodia’s Transfer Pricing regime, which allows the General Taxation Department to reallocate income, deductions, or other benefits between related parties if tax avoidance was arranged.

In October 2017, a comprehensive domestic Transfer Pricing framework was introduced for Cambodia, focused on the interpretation and procedure of income and expense allocation between related parties and local and cross-border entities. These are the first Transfer Pricing guidelines issued by the Ministry of Finance.

Likewise, the documentary requirements and methodologies to be followed by taxpayers in Cambodia with related party transactions were established.

Arm’s Length Principle

The Arm’s Length Principle requires that the fixed prices for transactions between related parties (“controlled transactions”) must approximate the prices negotiated between independent parties under comparable terms and conditions.

Related Parties

A “related party” is defined as a relative of the taxpayer or an enterprise controlling, controlled, or under common control with the taxpayer. The term ‘control’ means ownership of 20% or more of the shareholding interest in the enterprise or voting power of the board of directors.

Transfer Pricing Methods

In order to comply with the Arm’s Length Principle, taxpayers may employ one or more of the methods provided below:

  • Comparable Uncontrolled Price Method.
  • Cost Plus Method.
  • Resale Price Method.
  • Profit Split method.
  • Transactional Net Margin Method.

Taxpayers must prepare and provide supporting documents evidencing the appropriateness of the methods applied. If there are insufficient reasons to prove the suitability of the selected method, the tax authority is entitled to determine the appropriate method to be followed by the taxpayers.

Transfer Pricing Documentation

There is an annual requirement to file an “annex” with the taxpayer’s “Income Tax Return,” detailing each related party with which the transaction was performed and the type of related party transaction, among other requirements.

At the request of the tax authorities, the Transfer Pricing documentation must be available for inspection. The Transfer Pricing documents must be kept for a period of 10 years from the end of the corresponding tax year.

Taxpayers with related party transactions must prepare information, such as general information on the enterprise and related parties, information on the transaction of the enterprise, and on Transfer Pricing methods.

Taxpayers must complete the annual TOI statement with some information regarding related party transactions.

The documentation to be filed to the tax authority must be in Khmer and/or English.

Transfer Pricing Penalties

Tax penalties, ranging from 10% to 40% of the additional tax for violations of the Tax Law under Article 133 of the LOT, plus an interest charge of 1.5% per month for late payment.

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 Author:       Wolfgang Hartl
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