Cambodia Commences DTA Talks With Thailand
Mar. 15 – Cambodia, the only member of ASEAN not to have any bilateral tax treaties of its own, is moving forward to strike a double tax treaty with Thailand to better deal with increasing cross-border trade. The issue is complex as the two countries have a century year old border dispute, which as recently as 2011 flared up with military involvement. However, the two countries appear to have been able to put that behind them, with Thailand’s Sathit Rungkasiri, director general of the Revenue Department, saying it is a priority to expand the double tax treaty with all countries in ASEAN to prepare for the 2015 ASEAN Economic Community integration.
“The double tax treaties with 8 countries in ASEAN have come into force. Now, the Revenue Department is rushing to discuss this issue with Cambodia. Afterwards, we will focus on extending the coverage to non-AEC countries,” he said. The Thai government approved double tax treaties with nine additional countries this month, bringing the number of countries with such treaties with Thailand to 64. Thailand first concluded a double tax agreement with Sweden in 1963.
Cambodia’s position is to take the transition to a market economy slowly. Its own tax laws are less than a decade old and the country is unfamiliar with conducting such agreements. Additionally, the nation is already part of the ASEAN framework. However, Cambodia remains a capital importer and the structuring of bilateral tax agreements needs to be carefully thought out if these are not to put the Cambodian tax authorities at a disadvantage. This could be mitigated against by the country insisting on specially drafted rules in any treaty obligations and by not reducing withholding taxes – currently operating at a 14 percent rate. To conclude such agreements with the likes of Thailand, Cambodia will have to maintain a tight policy for the time being in order not to lose tax revenue which it cannot afford. That said – the development of first ASEAN members DTA with Cambodia now seems to be underway. It will be fascinating to see if Cambodia then reaches out beyond the ASEAN club and begins to engage in DTA or trade agreements with the likes of China – its largest import trade partner and political friend, and the United States – Cambodia’s largest export market.