On 19 February 2025, the General Department of Taxation (“GDT”) issued Notification No. 5524 GDT, which sets the market interest rates for related-party loans in 2024 based on the average annual loan interest rates of 12 large domestic commercial banks. The determined rates are 9.67% per annum for Khmer Riels and 8.79% per annum for US Dollars. These rates are exclusively used to determine interest on related-party loans. This Notification signifies a substantial change in the tax administration’s position regarding market interest rates. The title clearly indicates that it applies to related party loans while excluding its applicability for fringe benefit tax purposes.
A Brief History
Throughout the past years, the scope of this notification has undergone revisions and discussions. Until the tax year 2018, the notification on market interest rates was designed to set the interest rate applicable to related party loans following Instruction No. 151, dated 22 January 2014. However, commencing from the tax year 2019, the scope of this notification was modified to cover solely employer-employee loans for fringe benefits tax purposes, while related party loans became subject to the prevailing transfer pricing regulations. Consequently, taxpayers were mandated to perform transfer pricing analyses, including benchmarking studies, to ascertain an arm’s length interest rate.
Given that compliance with transfer pricing regulations can incur substantial costs, numerous taxpayers have advocated for the tax administration to reestablish a market interest rate for transactions involving related parties. Consequently, for the tax years 2022 and 2023, the notification regarding market interest rates has once more covered both fringe benefits tax and transactions related to loans between associated entities.
Our Perspectives
Although the market interest rate of 8.79% is deemed reasonable for domestic related party loans, it may seem relatively high for cross-border related party loans. Should the lender be a non-resident, they may implement the market rate to a tax deduction within the Cambodian entity, consequently decreasing the effective tax rate of the entire group. This discrepancy may present tax planning opportunities, which may require further adjustments in tax policies.
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