5 Hot Topics for Tax Audit 15 July 2010

PwC

Contents 1.

Withholding Tax 2.

Tax on Salary 3.

Tax on Fringe Benefits 4.

Related party transactions 5.

Documentation

Withholding Tax

Tax regulations: Tax audit: Issues:

PricewaterhouseCoopers A resident taxpayer is required to withhold tax at 15% on payments for services to a resident person who is not registered as a real regime taxpayer with the General Department of Taxation. 10% Withholding Tax is applicable to all rental payment to resident person. Tax auditors review the details of all expense items including supporting documents to identify the payments for services to individuals or non-tax registered persons and rental expenses and impose Withholding Tax on those expense items.

Taxpayers are not aware of the requirements and do not review in details the expense items to identify the tax exposure.

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Tax on Salary

Tax regulations: Tax audit: Issues:

Resident employees are subject to Tax on Salary on their worldwide sources of employment income, regardless of place of payment of the salary.

Tax auditors review employment contracts of expatriate employees to identify any portion of their salaries that are paid overseas. Then, Tax on Salary is calculated based on the progressive rates from 0% to 20%.

Some taxpayers believe that employee’s salary paid overseas is not subject to Tax on Salary in Cambodia.

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Tax on Fringe Benefits

Tax regulations: Tax audit: Issues:

Fringe Benefits include goods, services, other benefits in cash or in kind paid for direct or indirect advantage of employees for their employment activities. The fringe benefits are subject to Tax on Fringe Benefits at 20%.

Tax auditors review employment contract and detailed expenses to identify benefits provided to employees. If taxpayers are not able to provide supporting documents to prove that the expenses are incurred for business purposes, Tax on Fringe Benefits are imposed.

Some taxpayers do not have proper documentations to prove business expenses.

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Related party transactions

Tax regulations: Tax audit: Issues:

In the case of related parties, the tax authorities may distribute gross income, deductions, or other benefits among such parties in order to prevent avoidance or evasion of taxes or to clearly reflect the income of such parties.

Tax auditors can reallocate expenses or income between related parties and impose relevant taxes. The tax regulations do not provide clear guidelines in relation to basis of reallocation of expenses/income.

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Documentations

Tax regulations: Tax audit: Issues:

When taxpayers fail to maintain sufficient documents or fail to provide sufficient information to the tax authorities, the tax authorities have the right to assess tax based on information available to them.

Tax auditors generally request taxpayers to provide supporting documents to prove nature of accounts.

Some taxpayers do not have proper documentation and therefore are difficult to prove whether taxes assessed by the tax auditors are correct.

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PwC Tax Team

• Heng Thy – Tax Director - Tel: (855) 23 218 086 (ext: 1502), Mobile: (855) 12 658 555 - Email: [email protected]

• Samreth Muny – Tax Manager - Tel: (855) 23 218 086 (ext: 3001), Mobile: (855) 12 658 555 - Email: [email protected]

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