Cambodia may not benefit from joining the 130 countries that have signed up for the domestic tax base erosion and profit-shifting (BEPS) policy, according to the ASEAN+3 Macroeconomic Research Office (AMRO).
Companies use BEPS to exploit mismatches in tax rules to shift profits to locations with zero or low tax rates. The Organisation for Economic Co-operation and Development (OECD), an intergovernmental economic group with 38 member countries, founded in 1961 to stimulate economic progress and world trade, estimates the practice deprives governments of as much as $240 billion a year in tax revenues, equivalent to 10 percent of global corporate income tax revenue.
Cambodia has not signed up for BEPS, which means large companies may be able to sell products here and avoid taxes because they do not have offices in the country.
It does have its own regulations, thanks to a prakas introduced last year. The ruling defined “permanent establishment” as including non-residents who provide services to people in the Kingdom. There are still many grey areas in Cambodian tax law though, so multinationals may still be able to avoid taxes here.
The planned global tax change is made up of two pillars. With pillar one, countries can tax a multinational if it generates revenue there, rather than the company paying tax where it is incorporated. Pillar two sets a global tax that all large multinationals would have to pay.
Under pillar one there are two building blocks, amount A and amount B. Amount A applies to companies with a global turnover of around $23.4 billion and above 10 percent profitability. Amount B sets a fixed return for marketing and distribution activities that would apply to all local subsidiaries.
Within the ASEAN+3 region, the implementation of Amount A would probably benefit populous economies with high incomes and a significant digital economy, according AMRO.
“Cambodia, Lao PDR and Myanmar are not projected to receive significant additional tax revenue, given their small population sizes, lower income levels and shallow internet penetration,” AMRO said. “A caveat here is that MNEs’ [multinational enterprises’] e-commerce revenue from these economies could be lifted if consumers use mobile data and social media widely for online purchases.”
Covid-19 has been a catalyst in digital adoption according to National Bank of Cambodia Director-General Chea Serey. It led to a 250 percent increase in Cambodian e-commerce transactions and a 350 percent rise in their value since the start of the local pandemic in early 2020.
This article was first published in Khmer Times. All contents and images are copyright to their respective owners and sources.