Background

Cambodia has significantly strengthened its transfer pricing framework with the issuance of Prakas No. 986 MEF.GDT on Transfer Pricing. This regulation aligns Cambodia's approach with OECD guidelines and signals a more rigorous enforcement posture from the General Department of Taxation (GDT).

For multinational enterprise (MNE) groups with entities in Cambodia, compliance with these new requirements is now a legal obligation backed by significant penalties for non-compliance.

Who Is Affected?

The regulations apply to taxpayers who:

  • Are members of a multinational enterprise group
  • Engage in controlled transactions with related parties (domestic or cross-border)
  • Have annual turnover exceeding KHR 4 billion (approximately USD 1 million)

Important: Even domestic related-party transactions between Cambodian entities within the same group may be subject to transfer pricing rules if they meet the applicable thresholds.

The Arm's Length Principle

The core principle of Cambodia's transfer pricing rules is the arm's length standard: prices charged in controlled transactions between related parties must be equivalent to what unrelated parties would agree under comparable circumstances.

The GDT accepts several transfer pricing methods to demonstrate arm's length compliance:

  • Comparable Uncontrolled Price (CUP) Method
  • Resale Price Method (RPM)
  • Cost Plus Method (CPM)
  • Transactional Net Margin Method (TNMM)
  • Profit Split Method (PSM)

Documentation Requirements

The Prakas adopts a three-tier documentation structure consistent with the OECD's BEPS Action 13 recommendations.

Master File

A high-level overview of the MNE group's global business operations, organizational structure, transfer pricing policies, and financial position. This must be prepared by the ultimate parent entity and made available to Cambodian tax authorities upon request.

Local File

Detailed documentation specific to the Cambodian entity, covering its controlled transactions, functional analysis (functions performed, assets used, risks assumed), and the selection and application of the transfer pricing method.

Deadline: The Local File must be prepared in advance and be ready for submission within 30 days of a GDT request — retroactive preparation after audit notification is not considered compliant.

Country-by-Country Report (CbCR)

Required for MNE groups with consolidated group revenue exceeding USD 850 million (KHR 3.5 trillion). The CbCR provides aggregate tax jurisdiction-level data on revenue, profit, tax paid, and business activities across the entire group.

Penalties for Non-Compliance

Failure to maintain adequate documentation or income adjustments arising from non-arm's length pricing can result in:

  • Tax assessments on adjusted income at standard ToI rates
  • Penalties of up to 40% of the tax shortfall
  • Interest charges of 2% per month on outstanding balances

EP Partners recommends that all affected businesses conduct a transfer pricing health check to assess their current intercompany arrangements and documentation gaps before the GDT initiates a formal audit examination.