An amendment to the tax code gives government auditors clearer authority to access individual and corporate financial data, providing a tool to identify tax evasion and a deterrent to prevent it, tax professionals said yesterday.

Article 99 of the 2017 Law on Financial Management, which went into effect on January 1, updated the language of a provision that allows the General Department of Taxation (GDT) to request financial data from various financial institutions during the audit process instead of relying on documentation submitted by the taxpayer.

Anthony Galliano, CEO of Cambodian Investment Management, said the updated legislation gives GDT auditors clearer authority to scrutinise discrepancies between bank statements and tax returns, a measure that places the onus on the taxpayer to fully record and properly account for taxable business activity.

To prevent taxpayers from misreporting or underpaying, the tax authority now has a legal mandate to compare bank debits and credits in an account, as well as reported expenses and potentially understated profit, he said.

“In essence, all revenue invoices and expense entries should not only be listed on tax filings, but also traceable on a bank statement, in order to avoid unilateral assumptions by an auditor,” he said.

Galliano said the refined language of the amendment closed a longstanding loophole in the tax system that had allowed some registered taxpayers to hide business activity from the government by using undisclosed bank accounts.

“While multiple bank accounts were a classic mechanism of segregating reportable and non-reportable tax activity by deceptive taxpayers, that loophole has effectively been aborted,” he said.

“This is not only due to Article 99, but through the enforcement of tax licensing and the obligations placed upon the taxpayers for honest and accurate filing.”

Clint O’Connell, head of Cambodia Tax Practice for foreign investment advisory and tax firm DFDL Cambodia, said that the amendment was likely a more nuanced initiative, and that the GDT already had a similar framework in place, albeit broadly defined.

“It is important to note that even before the amendment brought about by the 2017 Law on Financial Management the GDT could, in theory, issue a notification letter to any ‘third party’ requesting information relating to a taxpayer,” he explained.

However, he added that this was often a tedious and time-consuming process, and instead the GDT would usually just issue a unilateral tax assessment when it found irregularities.

“In my experience a tax auditor would typically always request copies of the bank statements of the taxpayer for the period that they are auditing,” he said.

“I am not aware of any case where the GDT has requested taxpayer information directly from the bank itself.”

Nevertheless, he believed that the codifying language in the legal framework was more likely due to Cambodia’s push for compliance with double taxation agreements, such as the one signed with Singapore last May, which specifically highlighted that the Kingdom’s information-sharing laws needed to be cohesive.

“This could be seen as a foreshadowing of imminent developments pertaining to the active enforcement of information gathering power,” he said.

It could also stem from updated compliance with the US’ Foreign Account Tax Compliance Act (FATCA), which Cambodia adopted in 2014, he added.

In Channy, CEO of Acleda Bank, said an information-sharing provision was already in effect for local financial institutions but had yet to be used.

“By being in compliance with the GDT, we are obligated to provide any information they request,” he said. “It can be used to make sure that registered taxpayers are faithfully reporting their business activity.”

However, Channy added that the provision did little to stop unregistered taxpayers from slipping past the governments net. “Of course, bank activity gives better transparency than operating with cash,” he said.

“But the problem is that there is no law to investigate the finances of those that are not already registered as taxpayers.”