Transfer Pricing in Cambodia

The legal framework

Cambodia's transfer pricing regime sits on two tiers. The statutory anchor is Article 18 of the Law on Taxation promulgated by Royal Kram No. NS/RKM/0523/004 on 16 May 2023, which lets the tax administration reallocate income, deductions and other benefits between enterprises under common ownership, wherever incorporated, to prevent avoidance or to reflect income clearly. Common ownership is fixed at a 20% interest, and Article 18(3) delegates the operating detail to a Prakas of the Ministry of Economy and Finance (MEF). Article 5(10) supplies the related-person definition, again pegged at 20% of value or voting rights, with spousal holdings aggregated and a residual power for the General Department of Taxation (GDT) to find control on the facts.

The operative instrument is Prakas No. 574 MEF.PrK.GDT of 19 September 2024, applying from tax year 2025. It repeals Prakas 986 of 10 October 2017, Cambodia's first transfer pricing rules, which governed 2018 to 2024. Prakas 574 defines the arm's length principle by reference to conditions independent parties would have agreed, requires a comparability analysis showing either no material differences or differences that can be reliably adjusted, and empowers the GDT to revalue transactions that fail the test. Its related-party definition tracks the statute, keeps the family ties that Prakas 986 already covered, and adds the permanent establishment/non-resident head-office connection that Prakas 986 left alone.

Cambodia is not a member of the OECD/G20 Inclusive Framework and has no OECD country profile; the rules borrow OECD architecture (five methods, DEMPE, separate-entity attribution to permanent establishments under clause 18) without formally endorsing the Guidelines, which nonetheless carry persuasive weight in audits and competent-authority talks. The rules also apply to purely domestic related-party dealings, so every Cambodian entity, branches included, must defend its own pricing.

Methods, comparables and benchmarking

Prakas 574 accepts the five OECD methods (comparable uncontrolled price, resale price, cost plus, transactional net margin and profit split) and distinguishes traditional transaction methods from profit-based ones. There is no statutory hierarchy, but the taxpayer must justify its choice with evidence, and where that justification is thin the GDT may substitute its own. In practice the transactional net margin method dominates, with the Cambodian entity as the less complex tested party.

The range mechanics are the regime's most distinctive feature. Article 3 defines "arm's length range" and "median", and Article 7 leaves a result inside the range untouched while adjusting an outlier to the median, but only where the adjustment does not reduce tax or create a loss. What the Prakas does not do is prescribe an interquartile range: the worked example in Prakas 986 used the full minimum-to-maximum spread, and nothing official has narrowed it since. Any statistical narrowing should therefore be justified in the report rather than assumed.

Comparables are the practical difficulty. The Cambodia Securities Exchange had 27 listings at July 2026, but only 12 are equity issuers and the rest are bond-only, there is no public local database, and neither Prakas names one. Regional Asia-Pacific searches are the norm and have been tolerated since the regime began, yet auditors routinely test the taxpayer's set against the GDT's non-public internal data, producing mismatches nobody can anticipate. Comparable financials must be refreshed annually under Article 17(4); a fresh search every three years is adviser practice borrowed from the OECD Guidelines, not a Cambodian rule. For intangibles, Articles 14 and 15 carry over DEMPE analysis; for intra-group services the taxpayer must show the service was rendered, benefited the Cambodian entity rather than the shareholder, was not duplicative and was priced at arm's length.

Documentation: what the GDT expects

Clause 17(2) of Prakas 574 requires every taxpayer with related-party transactions to prepare transfer pricing documentation each year. Cambodia has not adopted the three-tier BEPS Action 13 package: there is no master file and no country-by-country reporting, and a group report will not discharge the local duty. The GDT wants a single entity-level report: ownership and corporate background, industry analysis, each controlled transaction and its pricing method, a functional analysis, an economic analysis with comparables and a conclusion stating the arm's length range.

Exemption is narrow and cumulative. Under clauses 17(2) and 17(7) a taxpayer escapes only if annual turnover is below KHR 8 billion (about USD 2 million), total assets below KHR 4 billion (about USD 1 million) and non-loan related-party transactions below KHR 1 billion (about USD 250,000). Prakas 986 contained no threshold at all, so every taxpayer with related-party transactions had to document for 2018 to 2024; the new exemption is a relaxation, and small entities that prepared reports for 2024 may fall out of scope from 2025, though failing any one of the three tests keeps the duty alive. Article 17(4) permits roll-forward of last year's report where nothing material has changed, provided comparables' financials are updated. Clauses 17(5) and 17(6) exempt related-party loans from both the arm's length principle and documentation for entities registered under three years, single-member private limited companies whose shareholder loan balance never exceeds KHR 3 billion, and sole proprietors borrowing from family.

Nothing is filed. Documentation must exist and be produced on request; Article 202 of the Law on Taxation allows 30 days, but field auditors commonly give seven. The annual Tax on Income return, e-filed within three months of year end (31 March for calendar-year taxpayers), carries a related-party annex listing each counterparty, transaction type and KHR value, and asks whether documentation has been prepared. That question is the practical deadline. Records must be kept for ten years (Article 201(4)). No language is prescribed for the report and English is accepted. Accounting records and supporting documents may be kept in English since ACAR Notification 031/24 AAR of 15 May 2024 clarified Circular 009, but annual financial statements must still be in Khmer and denominated in KHR or in dual currency, and auditors may request Khmer translations of key passages.

Audits, penalties and the enforcement climate

The GDT runs roughly 4,000 risk-selected audits a year under Prakas 270 on Tax Audits, and since Sub-Decree 160 of 16 July 2024 a Special Tax Audit Unit conducts comprehensive audits. Recurring transfer pricing targets are persistent losses or thin margins in entities that should earn stable returns (limited-risk distributors, contract manufacturers, captive service providers), intra-group management, technical and IT fees, royalties, related-party interest, and unremunerated services quietly provided to affiliates. Service charges are the most frequently disallowed item.

The penalty ladder is statutory. Article 233 imposes additional tax of 10% for negligence (underpayment of 10% or less), 25% for serious negligence, and 40% where the GDT assesses unilaterally, which is the rate that follows from missing or inadequate documentation. Interest runs at 1.5% per month or part month. Obstruction, which under Article 225 includes failing to provide requested information or keep proper records, attracts a KHR 10 million administrative fine under Article 235 and, for repeat conduct, criminal exposure under Article 243. Non-compliance also jeopardises the gold, silver or bronze compliance certificate, and gold status is what buys exemption from routine audit.

There is no penalty-protection regime and no safe harbour beyond the loan exemptions. Documentation matters because Article 212 lets the GDT assess on whatever information it holds when records are inadequate, with the burden of disproof on the taxpayer. The reassessment window under Article 210(2) is three years from filing, extended to ten where obstruction is evidenced; comprehensive audits in practice cover the prior three years, five where losses or evasion indicators exist.

Dispute resolution and advance certainty

Cambodia has no advance pricing agreement programme: Prakas 986 was silent, clause-level reviews of Prakas 574 identify only MAP and planning as risk-management tools, and no fee, tenure or rollback rules exist. An isolated 2026 adviser note suggesting APAs are available is not borne out by the Prakas or by GDT practice.

Domestic appeals follow the Law on Taxation. Article 211 gives 30 days to accept or dispute a reassessment notice, silence counting as acceptance. Article 236 allows a written protest to the Director General within 30 days of the collection notice, without suspending payment; Article 238 requires a decision within 60 days; the taxpayer then has 30 days to reach the Committee of Tax Dispute Resolution (Article 239) and a further 30 days to reach the courts (Article 240), after depositing security equal to the disputed tax. Interest stops while a timely protest is pending. In practice cases cycle through protest and second protest inside the GDT; the Committee carries a pending caseload of 100 to 200 appeals at any time and completes about 50 a year, only a handful go on to court, and no transfer pricing decisions have been published.

Treaty relief is the only bilateral route. Cambodia has eleven treaties in effect (Singapore, China, Brunei, Thailand, Vietnam, Indonesia, Hong Kong, Malaysia, South Korea, Macau and Turkey) and thirteen signed including the Philippines; each carries a standard MAP article with a three-year presentation window. The GDT has published no MAP guidance or statistics and no treaty provides for arbitration, so MAP is a negotiation without a backstop.

Pillar Two and what changes in 2026

Cambodia has enacted no GloBE rules: no income inclusion rule, no undertaxed profits rule and no qualified domestic minimum top-up tax. As a non-member of the Inclusive Framework it has no timetable. Laos and Myanmar are in the same position; Brunei and the Philippines belong to the Framework but have no GloBE legislation; Indonesia, Malaysia, Singapore and Thailand applied the rules from 1 January 2025, and Vietnam applied a qualified domestic minimum top-up tax and income inclusion rule from fiscal years beginning 1 January 2024 under Resolution 107/2023/QH15. For groups with Cambodian operations, incentive-holders especially, low-taxed Cambodian income is therefore collected by a parent-jurisdiction IIR or a UTPR elsewhere, not by Cambodia. Cambodia has likewise taken no position on Amount B.

The live developments are in financing. GDT Instruction 14256 of 12 May 2025 replaced the 2014, 2018 and 2022 loan guidance: a taxpayer may apply an agreed rate on a related-party loan without a benchmarking study if it holds a loan agreement stating term and repayment, a business plan or financial statements explaining the borrowing, and a board resolution, and the rate does not exceed the market rate the GDT publishes annually. Notification 5097 of 11 February 2026 fixed the 2025 caps at 9.36% for KHR loans and 8.45% for USD loans, drawn from twelve large commercial banks. Cash advances repaid within a year are not loans. More broadly, 2025 was the first year under Prakas 574, so 2026 audits will be the first to test its thresholds, the median adjustment and the new primary and secondary adjustment concepts.

How practitioners should respond

First, re-run the exemption test for every Cambodian entity against all three cumulative Prakas 574 thresholds; Prakas 986 had no threshold, so some small entities can now stop preparing reports, but failing any single test keeps the duty alive. Second, build that report as an entity-level local file with a functional analysis specific to the Cambodian operations, and record the range methodology explicitly, because the Prakas does not import the interquartile range and the GDT will adjust to the median of whatever range is defended.

Third, treat intra-group service charges as the highest-risk item: assemble benefit evidence, allocation keys and proof of performance before the invoice is booked, since these are the charges routinely disallowed at the 40% rate. Fourth, paper related-party loans to the Instruction 14256 standard and check rates against the annual notification; a missing board resolution is a cheap failure. Fifth, keep documentation ready to produce within seven days, with Khmer translations of the key sections prepared in advance. Finally, calendar the protest deadlines rigorously: 30 days at each stage, and the deposit requirement at the court stage means most disputes are won or lost inside the GDT.