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Interest Free Loans – Tax Reassessment Risk

Interest Free Loans – Tax Reassessment Risk

February 28, 2022

With a lack of thin capitalization rules in Cambodia, interest free loans have been the norm for many Multinational Enterprises funding their investment and ongoing operations in Cambodia. However, loss making or small profit margin Cambodian Taxpayers with interest free loans have found themselves facing large tax reassessments over the past three and a half years. This has taken the form of deemed interest on inbound loans creating withholding tax (“WHT”) reassessments. The reason this is particularly pertinent for loss making and small profit margin companies is that even if a corresponding adjustment in respect of Corporate Income Tax is successful this will either not offset the WHT amount due at all (loss making taxpayers) or in totality (small profit margin taxpayers).

This Article discusses the issues facing Cambodian Taxpayers with interest free loans and how international guidance may help to mitigate their risk.

Highlights of this note

  • Tax Audit Risks on Interest Free Loans;
  • Limitations of Cambodian guidelines;
  • How VDB Loi can help;
  • International Guidance;
  • Test of Substance;
  • Next Steps.


Kieron is an ACCA-qualified, international tax professional with 10 years of experience, including four years in Cambodia. Recognized as the leading transfer pricing specialist actually located in Cambodia, Kieron established and led KPMG’s transfer pricing practice in Cambodia. He has completed thousands of transfer pricing projects, including over 250 in Cambodia, such as preparing transfer pricing documentation in Cambodia and Vietnam for a Japanese-based banking group and saving millions of dollars in tax assessments on a Cambodian transfer pricing audit for a petroleum company. Kieron also has extensive and wide-ranging experience in M&As, IPO readiness exercises, cross-border transaction structuring, and tax regime advocacy across a range of industry sectors, with a particular focus on the energy, banking, real estate, and manufacturing sectors.

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