New Instruction on Rules and Procedures on Credit and Debit Notes

Credit notes and debit notes are used when there is an over- or under-charge on a customer’s invoice. Article 49 of the VAT Sub-Decree dated 24 December 1999 outlines the circumstances when a credit or debit note should be issued:

• The supply has been cancelled.
• The nature of the supply has been fundamentally varied or altered.
• The previously agreed consideration for the supply has been altered by an agreement with the recipient of the supply, whether due to an offer of a discount or for any other reason.
• The goods or a part thereof or any packaging has been returned to the supplier or the services have not been completed.

Seemingly straightforward, but in practice, we have seen controversies arise between taxpayers and the General Department of Taxation (“GDT”) over the reasons the notes were issued. Given this, on 24 January 2022, the GDT issued Instruction No. 1280 on the Rules and Procedures to Amend the VAT Amount after a Supply is Made or Invoice Issued to reiterate the rules and procedures for issuing credit and debit notes, and to provide some tax declaration examples for taxpayers’ clarification. In addition, the Instruction provides two key points as follows:

1. When issuing a credit note, the exchange rate used should be the same as that of the invoice being adjusted.
2. Taxpayers caught improperly issuing a credit or debit note for the purpose of amending the VAT amount in order to obtain a VAT credit or refund will be treated as having obstructed the implementation of the tax law as stated in Article 128 of Law on Taxation and will be penalized as per its Articles 133 and 136, which include temporary closure of the business, tax reassessment, or prosecution for criminal violation of the tax law, which carries a fine of up to KHR10,000,000 or imprisonment of up to one year or both.

Given the above, be sure that you have a proper reason for issuing a credit or debit note so as to avoid any potential penalties.