Penalty Free Correcting Past Tax Returns

February 9, 2024

Note: All activities, publications, and events mentioned in this post were conducted under the name VDB Loi prior to our transition to Andersen in Cambodia on 18 September 2024.

Tax season is upon us, and this year, Cambodia’s General Department of Taxation (“GDT”) is offering a helping hand to self-assessment taxpayers through Prakas 071. This new regulation promulgated on 30 January 2024, provides a unique opportunity to correct past tax declarations made due to misunderstandings or confusion, without facing hefty penalties and interest charges. But act fast, as the deadline to apply is 30 June 2024. This is a good opportunity for (1) obvious, glaring, indefensible mistakes you have discovered afterwards, but prior to a tax audit or (2) issues you have already lost or accepted in earlier tax audits and a future reassessment of it is just a matter of time.

Who qualifies?

Prakas 071 extends to self-assessment taxpayers seeking to amend prior tax declarations stemming from misunderstandings or confusion by either the taxpayers themselves or withholding agents.

What are the advantages?

Self-assessment taxpayers who proactively submit requests to rectify their accounting records and tax declarations before 30 June 2024, stand to benefit from exemption of administrative sanctions, including additional tax, interest, and penalties.

Administrative penalties, outlined in Article 231(1) of the Cambodia Law on Taxation, encompass additional taxes (ranging from 10% to 40% of the underpaid tax), interest (at 1.5% of the underpaid tax per month), fines (ranging from 5 million riels to 10 million riels), as well as license suspension or revocation, temporary business closure, contingent on the offense’s nature and severity.

Should it apply retroactively?

Requests to amend accounting records and tax declarations must pertain to transactions prior to January 2024. Transactions occurring after 01 January 2024 are ineligible for exemption.

In cases where the relevant period is already under tax audit, exemption from administrative sanctions applies only if the disclosure before the tax auditor’s discovery. Subsequent disclosure following the tax auditor’s discovery entails a 10% penalty on the underpaid tax and a monthly interest charge of 1.5%. However, any penalties and interest paid as a result of prior disclosure can offset future reassessment penalties and interest on the same issue post-audit.

Challenges

• Proving the initial mistake’s root cause as “misunderstanding and confusion” may pose challenges.
• Discovering issues before a tax auditor does is crucial, as taxpayers often learn about prior year tax discrepancies only upon receiving a notice of tax reassessment.
• However, what exactly is the “discovery” of an issue by the GDT in a tax audit? This is hard to evidence. Tying it to a Notice of Tax Reassessment would have made more sense.
• Time constraints: The window for corrections is before the end of June 2024, presenting a challenge for taxpayers busy with fiscal year-end work, completing financial audits, and filing income tax returns by the end of March.

For any questions or inquiries regarding this incentive or our services, please reach out to our dedicated team of advisors at Andersen in Cambodia. We are here to assist you in navigating this opportunity effectively.