Thailand
Cambodia: Kingdom will have a say in the global tax reform process
A major global tax overhaul that will set a tax floor of 15 percent has the ability to level the playing field when attracting international investments from technology companies and increase the Kingdom’s coffers.
A total of 130 countries in April agreed on a two-pillar reform ahead of the Group of 20 meetings that will require large, multinational firms to pay taxes in countries regardless of whether they have an office in jurisdictions.
The Organisation for Economic Cooperation and Development’s proposal will see firms like Facebook and Netflix, both of which provide services in Cambodia, pay at least 15 percent to local tax authorities under base erosion profit shifting (BEPS).
“Cambodia is a non-BEPs associate country, however, it can attend meetings, but it is not obliged to take up any of the recommendations,” explained Clint O’Connell, partner, deputy managing director and head of Cambodia tax practice at DFDL Cambodia.
BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little economic activity.
“Along with e-commerce activity comes the lack of a need for companies to have a physical presence in countries where they deal with customers. The classic example is Amazon. It can sell goods to customers in Cambodia without the need of a physical presence in the Kingdom, which provides a bit of a dilemma for local tax authorities on how we should tax companies [without] a physical presence [that conduct commerce] in our jurisdiction,” added O’Connell.
The new global tax system may be implemented as soon as 2023 and is meant to prevent tax avoidance in developing countries.
The US treasury secretary previously lauded the development saying that it could potentially end a “30-year race to the bottom on corporate tax rates”.
The US has promised to enact tax legislation in its own country to prevent countries from shifting profits or residency to “tax havens”.
The Kingdom is already shifting towards increasing revenue from and regulating the digital realm. The country currently levies a 10 percent value-added tax (VAT) on the sale of digital goods or services. The reforms, if adopted by Cambodia, have the potential to greatly increase the Kingdom’s tax revenues.
Under a current sub-decree, companies like Apple must register with the General Department of Taxation and its clients must pay VAT on the firm’s behalf.
Cambodia loses approximately 7.89 percent from its potential annual revenue budget because of tax avoidance by large tech firms, according to a 2020 report published by TJN, Public Services International and the Global Alliance for Tax Justice.
A total of $23.957 million is lost annually because of “global tax abuse” in the country, according to TJN.
Source: https://www.khmertimeskh.com/50913195/kingdom-will-have-a-say-in-the-global-tax-reform-process/