As international trade and cross-border investment continue to grow, tax authorities are placing greater emphasis on the regulation of related-party transactions. One such step is the introduction and enforcement of transfer pricing regulations, which aim to prevent profit shifting and ensure that related-party transactions are appropriately taxed. Businesses operating in or with Cambodia can take a proactive approach to ensure their transfer pricing policies meet regulatory requirements.
This guide explores Cambodia’s transfer pricing regulations in detail, covering key provisions, compliance obligations and exemptions.
- Cambodia’s transfer pricing rules align with OECD standards, using internationally accepted principles, clearer definitions of related parties and broader pricing methods.
- Exemptions and thresholds ease compliance for small or low-risk taxpayers with limited related-party dealings or intra-group loans, though documentation is still required in most cases.
- Intercompany charges can be tax-efficient in Cambodia, but deductibility depends on meeting the arm’s length standard, satisfying the benefit test and maintaining supporting documentation.
- Greater focus on comparability analysis, documentation quality and penalties highlights the need for proactive tax planning and thorough compliance.
Evolution of the transfer pricing framework in Cambodia
Cambodia’s transfer pricing framework was first formalised under Prakas No. 986 MEF.PrK in October 2017. This regulation first introduced the arm’s length principle, requiring related-party transactions to be priced as if conducted between independent entities. It also laid the foundation for documentation requirements and taxpayer disclosures, although enforcement mechanisms and procedural clarity were limited.
To address these gaps, the Ministry of Economy and Finance issued Prakas No. 574 MEF.PrK on 19 September 2024, repealing and replacing Prakas 986. The regulation represents a significant enhancement of the legal and procedural framework for transfer pricing.
Updated rules and procedures under Prakas No. 574 MEF.PrK
Prakas No. 574 introduces several key changes:
- The definition of related parties now includes not only shareholding and control relationships but also influence-based connections and family ties.
- A three-tier documentation framework, master file, local file and Country-by-Country Report (CbCR) (where applicable).
- Taxpayers conduct mandatory self-assessment, independently determining and justifying their transfer prices using appropriate methods.
- The General Department of Taxation (GDT) will apply a risk-based compliance approach, targeting audits based on factors such as transaction volume and type.
- Clear penalties apply for non-compliance, including fines, interest and sanctions for inadequate documentation or incorrect reporting.
- Form TPT accompanies the annual income tax return, disclosing related-party transactions and supporting audit risk profiling.
- Taxpayers may apply for an Advance Pricing Agreement (APA) to obtain prior approval of their transfer pricing method, helping to reduce uncertainty and potential audit disputes.
These provisions aim to create a more predictable and transparent tax environment, aligning Cambodia with global best practices while tailoring enforcement to local business realities.
OECD guidance
Cambodia’s transfer pricing rules follow the OECD Transfer Pricing Guidelines, which set the global standard, particularly the arm’s length principle, requiring related-party prices to mirror those between independent entities. This alignment ensures consistency with international tax practices and helps multinational enterprises (MNEs) integrate Cambodian operations into their global transfer pricing strategies.
By adopting OECD principles, the Cambodian tax authority demonstrates its commitment to curbing base erosion and profit shifting (BEPS), promoting equitable taxation across jurisdictions.
Transfer pricing methods
Prakas 574 outlines both traditional transaction and profit-based methods for determining arm’s length pricing. The appropriate method depends on the transaction type, data availability and information reliability.
| Transfer pricing method | How it works | When to use it |
|---|---|---|
| Comparable Uncontrolled Price (CUP) | Compares the price charged in a controlled transaction to a comparable uncontrolled transaction | Best when identical or very similar uncontrolled transactions are available |
| Resale Price Method (RPM) | Determines the resale price to an independent party, then deducts a gross margin | Suitable when the reseller adds little value to the product |
| Cost Plus Method | Adds an appropriate markup to the costs incurred by the supplier | Effective for manufacturing or service transactions involving internal supplies |
| Transactional Net Margin Method (TNMM) | Compares the net profit margin relative to a base (e.g. sales, assets) with similar independent parties | Common when exact comparables are not available; widely used |
| Profit Split Method | Splits combined profits from related parties based on contribution analysis | Best for integrated operations with highly interrelated transactions |
Deductibility of intercompany charges
Intercompany charges such as management fees, service fees and royalties are generally deductible in Cambodia if they are priced at arm’s length and supported by adequate documentation. The GDT applies a substance-over-form approach, meaning deductibility depends on both pricing and the underlying commercial rationale.
Management and service fees
Management and intragroup service fees are deductible where the services are genuinely provided, deliver economic value and meet the arm’s length standard. This follows the benefit test, which requires that an independent party would be willing to pay for the same services under comparable conditions.
The Cost Plus Method is widely used with an appropriate markup to the costs of the service provider. Charges relating to shareholder activities are generally not deductible. Supporting documentation should include service agreements, invoices and records of service delivery, along with a clear explanation of the cost base, allocation method and pricing.
Royalties
Royalties for the use of intellectual property are deductible if they reflect an arm’s length rate and are supported by a licensing agreement. Under Articles 14 and 15 of Prakas 574, the pricing aligns with the Development, Enhancement, Maintenance, Protection and Exploitation (DEMPE) framework, which considers which entity performs and controls the key functions related to the intangible asset. Legal ownership alone is not sufficient.
Withholding tax considerations
Intercompany charges are also subject to withholding tax (WHT), which affects the after-tax cost. The standard WHT rates for common intercompany charges are set out below.
| Payment type | To resident taxpayers | To non-resident taxpayers |
|---|---|---|
| Management and technical service fees | 15% (exempt if supported by valid VAT invoice from a registered taxpayer) | 14% |
| Royalties | 15% | 14% |
Under Circular No. 024, royalty and interest payments made between taxpayers under the self-assessment regime are exempt from WHT if supported by a valid invoice. This removes the need to withhold, but the income is still reported by the recipient. Where a double taxation agreement (DTA) applies, WHT is typically reduced to 10%, subject to pre-approval from the GDT.
Self-assessment, timeline and penalties
Prakas 574 places the responsibility for transfer pricing compliance on taxpayers, who determine and document arm’s length prices using approved methods. Documentation is prepared at the time of filing the annual income tax return and kept for at least ten years. The GDT may audit and adjust pricing if needed.
Non-compliance can lead to:
- Additional tax assessments
- Penalties of 10%–40% of underpaid tax
- 1.5% monthly interest
- Criminal prosecution for fraud
These stricter rules replace the more lenient approach under Prakas 986, highlighting the importance of timely and accurate documentation to mitigate audit risks and financial penalties.
Comparability determination factors
To comply with Cambodia’s transfer pricing rules, businesses assess whether transactions between related parties are comparable to those between independent entities. Under Cambodia’s transfer pricing regime, several comparability factors are considered:
- Characteristics of the goods, services or intangibles involved in the transaction
- Functions performed, assets used and risks assumed by each party
- Contractual terms of the transaction
- Economic circumstances, including geographic markets, competition and market size
- Business strategies, including market penetration plans or R&D arrangements
These comparability criteria are analysed and documented in the local file to substantiate the taxpayer’s pricing approach.
Exemptions from transfer pricing
Prakas 574 introduces exemptions and simplified compliance rules for low-risk and small-scale taxpayers to reduce the administrative burden.
A Cambodian taxpayer is exempt from preparing a full Transfer Pricing Document (TPD) if the following conditions are met in a tax year:
- Annual turnover is less than KHR 8 billion (~USD 2 million) and total assets are less than KHR 4 billion (~USD 1 million).
- Total value of related-party transactions (goods, services, assets, royalties) is less than KHR 1 billion (~USD 250,000), excluding loan transactions.
Additionally, Prakas 574 introduces safe harbour exemptions for certain related-party loans. Resident taxpayers (excluding banks and non-bank financial institutions) are exempt from the arm’s length requirement and loan documentation obligations if the enterprise has been incorporated for less than three years or is a single-member private limited company with shareholder loans below KHR 3 billion.
For loans outside these exemptions, interest rates should align with market benchmarks set by the GDT. Even if these rates are applied, taxpayers need to retain loan agreements and supporting documentation to substantiate the transaction during an audit.
Even if exempt from full TPD, taxpayers still:
- Disclose related-party transactions in the Annual Tax on Income (TOI) return
- Maintain basic supporting documents to justify the arm’s length nature of transactions
- Be ready to provide additional information if requested by the GDT
Conclusion
The introduction of Prakas No. 574 marks a major step forward in Cambodia’s tax system, establishing a more transparent and globally aligned transfer pricing regime. Businesses operating in Cambodia now view transfer pricing not as a routine compliance issue but as a strategic element of their tax governance framework.
The regulation aligns with OECD standards, sets clear documentation requirements and offers targeted exemptions. However, the responsibility lies with taxpayers to choose the right methods, keep thorough records and conduct proper comparability analyses.
By staying proactive and seeking expert guidance, companies can reduce audit risks, avoid penalties and support a fairer tax environment in Cambodia. To better understand how audits are conducted and how to prepare, refer to our guide on tax audits in Cambodia.
How Acclime can help with transfer pricing compliance in Cambodia
Acclime Cambodia offers complete support in transfer pricing documentation and tax compliance. From transfer pricing policy development to audit defence, our team of experts can assist with everything from preparing master and local files to determining arm’s length pricing methods. By partnering with us, businesses operating in or with Cambodia can confidently meet regulatory obligations and reduce the risk of penalties or disputes. Contact us to learn more about how we can support your transfer pricing strategy and compliance with Prakas No. 574.
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