On 5 February 2015, the General Department of Taxation (“GDT”) released Notification 891, which provides the deemed market rates for determiningthe caps on interest rate deductions under Circular 151.
Under Circular 346, the GDT set the deemed market rate to 10.15% per annum for tax year 2014. This rate was gathered by the GDT through the averaging of the interest rates of eight Cambodian banks. The banks were not identified in the circular.
As you may be aware, Circular 151 set a limit to the interest deductions that a taxpayer may apply for each loan that it contracts. Please click on this link to access our alert on Circular 151.
We note that the literal translation of the Khmer language mentions that the above rate will apply to “money borrowed in 2014.” There is some ambiguity in the use of this Khmer term as it is not certain whether the rate cap will apply only to (i) interest on loan agreements that were executed in 2014 or to (ii) interest on loan agreements executed before 2014 but with drawdowns that occurred in 2014 (such as facility agreements). It would appear from the straightforward application of Notification 891 that the 2014 drawdowns on facility agreements executed before 2014 should still be considered as “money borrowed in 2014.”