Archive for February 2012


DFDL Insists Reports of the Death of its Tax Division an Exaggeration

February 29th, 2012 — 9:24pm

1st March 2012

One of Cambodia’s largest law practices, DFDL Mekong, says it continues to have the capacity to offer tax services to companies throughout the region despite the bulk of their tax advisory staff voting with their feet to join VDBLoi, a brand new firm set up in the last week by two ex-partners, as reported by Penh Pal last Sunday and subsequently picked up by the local English language press here.

According to a news release on the DFDL website, the departure of the two partners “only affects a portion of our tax advisory teams in Cambodia and Vietnam” and “our legal team remains fully intact throughout the region…. All of our tax advisers in Laos, Thailand, Myanmar, Singapore, Indonesia and Bangladesh have stayed with the firm.”

Unfortunately for DFDL, it appears that Cambodia and Vietnam covers the majority of their present customers. Moreover, covering all this territory with what appears to be the three remaining staff will require Herculean efforts.

In the meantime, DFDL has announced that it has appointed Jack Sheehan as regional director of its tax and customs department for the region. Sheehan has extensive experience, in Laos, where he worked up until 2011 for Ernst and Young.

After five years or so in sleepy Vientiane, poor Jack is going to be a very busy man!

Meanwhile, word on the street is that it isn’t just the staff who are heading across town to the new office in the Hyundai Phnom Penh Tower.

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Rich Not Smarter than the Rest of Us but They are Different

February 27th, 2012 — 11:44pm

28th February 2012

During an address to 8000 youths at Diamond Island yesterday, the Prime Minister complained that the spoiled children and wives of some rich and powerful officials were want to exploit their fathers’ and husbands’ positions, the Kampuchea Thmey Daily reports. The premier urged these officials to educate their children to walk the right path and not to fall into the mindset that, as the saying goes, “If a husbands has a third rank, their wives claim four and their children behave as if they had five.” They needed to change their attitude, whereby some of these wives and children felt they had a right to appropriate their husbands’ status. The PM noted that this problem wasn’t only restricted to Cambodia, but nevertheless it was essential to remedy these bad attitudes.

Recent research has thrown some light on why the rich are not like the rest of us.

According to seven experiments that weighed the ethics of hundreds of people, the “upper class” (as defined by the study) were more likely to break the law while driving, take candy from children, lie in negotiations, cheat to increase their odds of winning a prize and endorse unethical behaviour at work, researchers reported today in the Proceedings of the US National Academy of Sciences.

Thinkers have often speculated over the possibility that people with fewer resources and dimmer prospects might be expected to do whatever is necessary to get ahead, while wealthy types may be more focused on themselves, because money, independence, and freedom can insulate people from the plight of others.

Psychologist Paul Piff of the University of California, Berkeley, and colleagues devised a series of tests to see whether dishonesty varies with social class. Working with groups of 100 to 200 Berkeley undergraduates or adults recruited online, subjects were asked to complete a standard gauge of their social status, placing an X on one of 10 rungs of a ladder representing their income, education, and how much respect their jobs might command compared with other Americans.

Privilege apparently promotes dishonesty, the findings suggest. For example, one experiment invited 195 adults recruited using Craigslist to play a game in which a computer “rolled dice” for a chance to win a $50 gift certificate. The numbers each participant rolled were the same; anyone self reporting a total higher than 12 was lying about their score. Those in wealthier classes were found to be more likely to fib, Piff said.

“A $50 prize is a measly sum to people who make $250,000 a year,” he said in a telephone interview. “So why are they more inclined to cheat? For a person with lower socio-economic status, that $50 would get you more, and the risks are small.”

Poorer participants may be less likely to cheat because they must rely more on their community to get by, and thus are more likely adhere to community standards, Piff said. By comparison, “upper-class individuals are more self-focused, they privilege themselves over others, and they engage in self-interested patterns of behaviour,” Piff said.

When participants were manipulated into thinking of themselves as belonging to a higher class than they did, the poorer ones, too, began to behave unethically. In one test, subjects were asked to compare themselves with people at the top or the bottom of the social scale (Donald Trump or a homeless person, for example) and were then permitted to take candies from a jar ostensibly meant for a group of children in a nearby lab. Subjects whose role-playing raised their status in their own eyes took twice as many candies.

Another test asked 108 adults found through Amazon.com’s work-recruiting website Mechanical Turk to assume the role of an employer negotiating a salary with someone seeking long-term employment. They were told several things about the job, including that it would shortly be eliminated. Upper-class individuals were more likely not to mention to the job-seeker the impermanence of the position, the research found.

Participants were asked In another test to list several benefits of greed, with the example that greed can help further one’s professional goals, then asked to come up with three additional benefits. Again, lower-class subjects whose attitudes toward greed had been nudged in this way became just as likely as their wealthier counterparts to sympathise with dishonest behaviour (taking home office supplies, laying off employees while increasing their own bonuses, overcharging customers to drive up profits).

The researchers took their hypothesis to the streets in a final experiment. At a busy intersection in the San Francisco Bay area, the team stationed “pedestrians” at pedestrian crossings, with instructions to approach the crossing at a point when oncoming drivers would have a chance to stop. Observers coded the status of the cars’ drivers based on the vehicles’ age, make, and appearance. Drivers of shiny, expensive cars were three times more likely than those of old clunkers to plough through a crossing, failing to yield to pedestrians as required by California state law. High-status motorists were also four times more likely than those with cheaper, older cars to cut off other drivers at a four-way stop.

In an interesting twist, about one-third of Prius drivers broke pedestrian crossing laws, putting the hybrid among the highest “unethical driving” car brands. “This is a good demonstration of the ‘moral licensing’ phenomenon, in which hybrid-car drivers who believe they’re saving the Earth may feel entitled to behave unethically in other ways,” Piff says.

Piff says the study may shed light on the hotly debated topic of income inequality. “Our findings suggest that if the pursuit of self-interest goes unchecked, it may result in a vicious cycle: self-interest leads people to behave unethically, which raises their status, which leads to more unethical behaviour and inequality.”

The study builds on previous research that has shown wealthy people are worse at recognising how others feel and are more likely to be disengaged during social interactions than others, the authors wrote in the paper. That seems to be the case even in primates, said Piff.

Meanwhile, according the Cambodian National Institute of Statistics, inflation in January of this year increased by 5.8% compared to the same period last year, with food and gasoline continuing to rise, the opposition-aligned Moneaksekar Khmer reports.  Data from the Institute showed that the price of beverages rose by 7.7%, rice 7%, pork 20.3%, beef 17.5% this year, while fish and seafood increased by 7.1%.

The escalating price of petrol and foods badly affected the livelihood of the average Cambodian, particularly civil servants, teachers, soldiers, policemen and garment workers that had low incomes and therefore couldn’t cope with this leap in the cost of living, the paper commented.

Desperation may yet also produce evidence of ‘bad behaviour’ but in this case it will, at least, be understandable.

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Cambodian Economy at the Crossroads?

February 26th, 2012 — 12:29am

26th February 2012

Cambodia’s central bank expects economic growth in 2012 to accelerate to its fastest pace in four years.

“One of the priority sector of the government is to develop the agriculture” said Nguon Sokha, Director General, National Bank of Cambodia (NBC). “At the moment, growth is driven by the garment sector, tourism sector and construction. Cambodia is an agriculture land so we need to develop based on our natural resource.”

While ASEAN economies are expected to grow by about 5.5 per cent this year, the ADB has projected that Cambodia’s GDP may expand by 6.5% this year. Garment-making has been a mainstay of Cambodia’s economy, which has grown by between 6 and 7% annually over the past four years but this growth could now well stall.

Instead the government is turning its focus back to the land in the hope that rice growing and other agricultural produce will lift growth closer to 8%, making it among the world’s fastest-growing economies.

The ADB says emerging markets like Cambodia should leverage off China’s increasing presence in the region and make better use of the regional connectivity, in order to fully realise growth potential – especially with more than half of Cambodia’s FDI coming from China.

“Cambodia faces significant infrastructure deficiency in both physical and soft infrastructure,” cautions the ADB’s Assistant Chief Economist, Cyn-Young Park. “Cambodia has already expressed that there are some skills mismatch in various areas. And they’re trying to invest a lot in vocational training that really matches the jobs that are being created for the future”.

In recognition of its poor highways, the Bank has also provided $US69 million for Cambodia to make major upgrades of provincial roads in some of the country’s poorest provinces, according to a statement from the Bank on Wednesday.

The Provincial Roads Improvement Project, financed by a $US52 million loan from the ADB Special Funds and a $US17 million loan and grant from the Pilot Programme for Climate Resilience, will be used to rehabilitate about 150 kilometres of unpaved provincial roads in Kampong Chhnang, Kampong Speu, Prey Veng and Svay Rieng provinces.

The loan for the Provincial Road Improvement Project from its concessional Special Funds will have a 32-year term including an eight year grace period with a 1.0% annual interest charge that will rise to 1.5% for the balance of the term.

“Efficient transport is critical for economic growth. This initiative will provide safe, cost-effective and year-round access to markets, employment centres and social services for poor and remote communities,” ADB Vice President Stephen P. Groff said during the signing ceremony for the programme. By the end of 2011, ADB assistance to the Cambodian transport sector consisted of 11 projects amounting to $3US73.26 million.

Cambodia’s rural economy is becoming increasingly dependent on the road network, but the steady growth in traffic, overloaded cargo vehicles and poor road maintenance and standards continue to take a severe toll on the 9,500 km of secondary national and provincial roads.

The problem is only 11% of the roads in the Kingdom are paved.

“As a result, economic opportunities are limited, and road safety has become a serious concern, with the highest accident rate in the region,” according to the ADB statement.

The project will address road safety by providing community-based awareness programs for staff and agencies engaged in planning, managing and maintaining roads. It will also introduce axle-load control at strategic locations on provincial roads and enhance regional transport and trade activities in the Greater Mekong Sub-region corridors.

Given floods and other severe weather-related events Cambodia has faced in recent years, the project “takes an innovative approach” to climate resilience by introducing ecosystem-based adaptation strategies, road design features and plans for disaster preparedness, mitigation and response to natural disasters, the ADB says.

The NBC has great hopes for the expansion of the banking industry – especially as a way of soaking up unemployed university graduates – because the country boasts relatively liberal foreign ownership rules compared to it’s neighbours.

“There is a lot more interest from foreign investors to enter the banking industry in Cambodia given the good economic potential, macroeconomic stability, and  political stability,” the Director General of the NBC claims. “We need to balance between the need to establish fair competition in the banking sector in order to reduce the cost in using the financial services for our consumer, but at the same time, we also need to look into the components, like risk management.”

Most observers think this is wildly optimistic. No doubt some regional and Chinese banks are sniffing around but most that stay here will probably end up in the laundry business. The only major foreign presence in the sector here, ANZ, has recently started to downside its ambitions to be a full-service operator covering the country after, it is said, being outwitted by its local partner.

Recently, the Economist magazine suggested that South Korea might serve as an exemplar for the Kingdom, given its phenomenal performance following its almost total destruction during the Korean War – a similar experience to Cambodia.

However, the Koreans were smart enough to realise that they needed to carefully conserve their educational budget and chose to build a world class primary/elementary school system with the funds available – to produce well-educated workers for its factories – while rationing access to tertiary institutions, the opposite of what has happened here.

In the past, Korean students sought well-class university qualifications overseas in the developed world at no cost to the exchequer. Here in Cambodia, public schools are dire and the standards at universities means that qualifications from them are generally worthless.

This makes it very difficult to have much confidence that economic growth will meet the expectations of the government.

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Blood on the Tracks: DFDL Mekong Loses its Entire Tax Team

February 25th, 2012 — 9:10pm

26th February 2012

To lose one tax partner may be regarded as a misfortune but to lose the whole team looks like negligence (apologies to Oscar Wilde) but this is what has just happened at leading law firm DFDL Mekong.

DHDL is well known here in Cambodia, as well as having offices in Laos, Thailand, Myanmar, Vietnam, and a number of other minor jurisdictions, such as Singapore.

This unexpected coup has the business community here in Phnom Penh agog and will come as a blow to the DFDL’s ambitions, as according to those in the industry, tax is usually very profitable.

This may point to the reason for the divorce: the company has long been dominated by the legal eagles.

The result is the creation of a new tax consultancy, to be called VDB Loi, with offices in the new Hyundai Phnom Penh Tower.

The “VDB” part of the acronym stands for Edwin Van Der Bruggen. Van Der Bruggen has over fifteen year in SE Asia as a tax lawyer, academic, author and adviser to various governments. He has published seven textbooks and over fifty articles, some of which won his accolades,. He was an adviser to Cambodia’s Minister of Economy and Finance of Cambodia on the conclusion of double taxation agreements, as well as providing training on tax treaty issues to government officials in a number of other SE Asian countries, including Thailand, Vietnam and Laos. As a tax partner at DFDL he advised on international taxation and won the prestigious “best tax law firm of the year” and “best corporate tax law firm” for the company.

The “Loi” bit stands for Jean Loi, another former partner at DFDL, well known for her long experience in Cambodia, having worked here since 2002. Before that, she was a tax partner with PwC where she oversaw numerous tax audits and appeals, often liaising with top tax officials to settle disputes. Widely respected for her technical tax knowledge and understanding of industry practices, she has assisted tax authorities and industry associations with formulating new policy and drafting tax regulations on a number of issues.

Loi would only comment to say the parting was amicable and that she was honoured to have been a partner at DFDL, as they are an excellent professional services firm.”

It is also expected that many of DFDL’s tax clients will follow the team to the new company.

 

The following is the email sent to clients yesterday:

Subject: Farewell from the DFDL Tax Team

Dear Clients,

With mixed feelings of regret and excitement, we would like to inform you that we will be pursuing our career in tax services in a new professional capacity.

Today is our last working day at DFDL.

It is always hard to part from a firm with such excellent reputation as DFDL, and where we had the privilege of being partners, advisors and staff. We leave our friends at DFDL on good terms and we wish them every success!

We have all enjoyed working with you as a client, and  we wish to thank you for your loyalty over these past years.

Partners:

Edwin Vanderbruggen

Jean Loi

Cambodia:

Senior Tax Managers:

Laysym Sim

Clint O’Connell

Tax Managers:

Sophin Hong

Kimsroy Chhiv

Senior Tax Consultants:

Sivila Khim

Guech Chou Chhour

Sodeth Heng

Tax Consultants:

Sokha Srun

Cynthia Herman

Nika Sour

Kanitha Chea

Tax Assistants:

Chanthida Hak

Sreysros Seng

Vietnam:

Huy Cam Luu, Senior Tax Manager

Pham Ngoc Thuan, Senior Tax Manager

Le Thuy My, Tax Adviser

Singapore:

Fung Ling Hu, Tax Manager

 

With my very best regards,

Edwin Vanderbruggen

Managing Director, Tax and Customs Practice Group

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Extraordinary Events at the KR Tribunal in the Month of February 2012

February 23rd, 2012 — 10:21pm

24th February 2012

The Open Justice Initiative was just released a report that catalogues the grotesque course of events that played out at the Extraordinary Chamber of the Courts of Cambodia since the start of this year.

Reading more like a soap opera than the deliberations of an august judicial body, the farcical circus captured by the monitoring group would suggest to most people that the level of dysfunction has already reached critical mass – but still the beast will not die!

But no, the KR Tribunal is now seeking a further $US89.6m to $US92m from donors to cover the costs of the next two years for both sides in the bifurcated chamber, the opposition-aligned Moneaksekar Khmer reports (this is despite that they were meant to be funded separately).

Yet the Tribunal’s budget proposal for its 2012-2013 failed to clarify the details of what it proposed to do once the current Case 002 is completed, such as whether it plans to pursue controversial Cases 003-004 and the exact timeframe of these cases. This can’t be estimated until the ECCC has resolved the current discord between the co-investigation judges, which appears to have become a stalemate.

Still, as Abraham Lincoln said, you can fool all of the people some of the time, but surely this has gone on long enough?

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