The Ministry of Economy and Finance (“MEF”) released Prakas 270 on Tax Audits (“Prakas 270”) on March 13, 2019, in an effort to streamline the tax audit process as part of the government’s large-scale economic reforms, increase transparency in tax payments and collections, and encourage a fair and competitive market climate. The following are some specific tax audit concerns of which readers should be aware.
1. Retention of supporting documents
All registered taxpayers in Cambodia are required by law to keep supporting documentation for their accounting records and tax returns for a period of ten years. Taxpayers that are unable to find required records from previous years may be subject to additional tax penalties and reassessments that are excessive. The GDT would not recognize as legitimate reasons for this failure, such as a lack of trained staff to identify appropriate supporting documents, a lack of a proper filing system for accounting records and supporting documents, or a lack of information transfer between former and current accounting personnel.
Related: What types of tax audits might your business be subject to?
2. The following are the variations between monthly and annual tax returns
Multiple figures input in monthly tax returns with those input in annual TOI returns, such as taxable turnover (B0), wage cost (B20), and so on, are often compared by tax auditors. Taxpayers also neglect to produce or retain records of such reconciliations.
3. Permanent establishment
Most taxpayers, including multinational corporations, fail to understand the complexities of permanent establishment issues and, as a result, fail to seek the appropriate professional advice regarding their commercial arrangements. As a result, an overseas affiliate may be considered to have a business presence in Cambodia, producing Cambodian-sourced profits subject to Cambodian taxation.
Related: The Ultimate Guide to Starting a Business in Cambodia
4. Transfer pricing documentation
Some taxpayers seem to be taking a “wait-and-see” approach to the recently enacted transfer pricing regulations. Taxpayers who engaged in related party transactions but did not prepare the transfer pricing documents needed by Prakas 986 for the 2018 tax year are likely to be targeted for tax audits, as this would suggest a high risk of tax non-compliance.
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