New decree sets transfer pricing rules for multinational firms

The new prakas (decree) released late on Wednesday night sets out new requirements for multinational companies to declare profits, costs and transactions involving overseas parent companies and their wholly-owned subsidiaries, aiming to prevent transfer mispricing that can manipulate market prices and rob the state coffers of due tax revenue. Vann Puthipol, deputy director of the General Department of Taxation (GDT), described the regulation as an important step forward in corporate compliance that was modelled on similar regulation in neighboring countries. According to tax experts, in order to comply with the regulations of the new prakas, multinationals would need to divide the revenue and expenditure of their Cambodian operations using the “Arm’s Length Pricinple”. The Arm’s Length Principle requires multinationals to conduct transaction between related companies as if they were dealing with an independent third-party. The new prakas allows multinationals to choose from five OECD-recognized methodologies: Comparable Uncontrolled Price, Resale Price Minus, Cost Plus Methods, Profit Split Method or Transactional Net Margin Method, while in necessary cases, the tax authority has the right to introduce and require tax payers to use any method that is suitable for the real situation of the taxpayer. (Source: Phnom Penh Post)