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      So Dary
      So Dary

      Partner, Head of Corporate Services

      KPMG in Cambodia

      Andrea Godfrey
      Andrea Godfrey

      Partner, Head of Integrated International Tax|Head of Markets

      KPMG in Cambodia

      03 July 2025

      By Andrea Godfrey & So Dary,  KPMG in Cambodia

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      As global trade tensions rise, Cambodia’s export-oriented economy faces fresh pressure from a wave of tariff increases, most notably from the United States. While much of the focus has been on direct impacts such as higher costs and reduced competitiveness, experts now warn of deeper implications tied to transfer pricing (TP)—and a growing risk of tax disputes if businesses don’t adapt quickly.

       

      Cambodia’s Strategic Position in Global Supply Chains

      Cambodia has become a crucial manufacturing hub for multinational corporations in sectors like electronics, apparel, and consumer goods. With a strong export base and increasing integration into global value chains, the country is particularly sensitive to sudden changes in trade policy.

      Short-Term Shocks vs Long-Term Shifts

      • Sudden cost spikes due to new tariffs
      • Disrupted U.S. orders or thinner margins
      • Quick fixes like rush shipments or price hikes
      • Outdated TP arrangements

      • Possible relocation of supply chains
      • Diversification to non‑U.S. markets
      • Need for reinvestment and new buyers
      • Fresh pricing logic and documentation needed

      One common example: A Cambodian subsidiary sells to its U.S. parent company. With Cambodia tariffs in place, should the Cambodian entity lower its prices to maintain competitiveness? Or should the U.S. side absorb the extra cost? Either choice affects where the profit—and tax liability—lands.

      Why Transfer Pricing Now Matters More Than Ever

      Transfer pricing, which governs how profits are allocated among related entities in different countries, is coming under intense scrutiny. Tariffs reduce total profits, and tax authorities—both in Cambodia and abroad—are closely watching how those profits are shared.

      In Cambodia, tax officials may challenge exporters who report lower margins due to tariffs, especially if there's no supporting documentation. If foreign authorities take a different view, businesses may face double taxation—a situation where the same income is taxed in two countries.

      Documentation: The First Line of Defense

      Cambodian tax authorities have already been ramping up TP audits in recent years. Tariff-induced profit drops or pricing changes will trigger even closer reviews.

      Companies should act now to:

      • Clearly document why prices changed (e.g., new tariffs, supply shifts)
      • Run scenario analyses to explain how costs and profits are shared
      • Consider Advance Pricing Agreements (APAs) to lock in treatment with key trade partners

      Practical Steps for Cambodian Exporters

      • Re‑evaluate TP policies
      • Strengthen TP documentation
      • Monitor global tariff changes
      • Explore bilateral APAs

      • Align with current costs and profit pressures
      • Avoid disputes and defend pricing structures
      • Prepare for future cost and price volatility
      • Reduce risk of double taxation

      Looking Ahead

      Cambodia’s integration into global trade is a strength—but also a vulnerability. As geopolitical and economic uncertainties grow, exporters must not only navigate cost pressures, but also adjust their internal pricing strategies to stay compliant and competitive.