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Thread: Tax implications on Write off of inter-company loans

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    Tax implications on Write off of inter-company loans

    Dear all

    We had a free interest loan to a foreign subsidiary in 2016. This loan was written off end of 2016 since we were not expecting to get it back, which then triggered deemed dividend from a foreign company and is exempt for tax. In 2017 the situation changed and foreign subsidiary had enough cash to pay the loan. The loan is now paid up.

    What is the tax implication of the transaction?
    Do I need to included deemed interest on the loan for the period of 2017 on my tax calc?
    Do I still treat the transaction as dividend received or do I reverse the entry?

    Regards
    Malose

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    Malose, this is my opinion only...

    The loan was written off (I assume actually written off as opposed to impaired?) and now it is recovered, and your entries should merely reflect that.

    The deemed dividend was an income tax issue and I assume no financial entry was done.

    The repayment of the loan is just that, recovery of a previously written off amount. I don't believe there is any interest because of the original terms.

    Much depends on what you did in the past. A deemed dividend is a tax entry and don't think you should have reflected a dividend received. If you did then yes you should reverse it, with suitable disclosures.

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    Quote Originally Posted by Andromeda View Post
    Malose, this is my opinion only...

    The loan was written off (I assume actually written off as opposed to impaired?) and now it is recovered, and your entries should merely reflect that.

    The deemed dividend was an income tax issue and I assume no financial entry was done.

    The repayment of the loan is just that, recovery of a previously written off amount. I don't believe there is any interest because of the original terms.

    Much depends on what you did in the past. A deemed dividend is a tax entry and don't think you should have reflected a dividend received. If you did then yes you should reverse it, with suitable disclosures.
    Thank you very much Andromeda.

    The loan was actually impaired and then reversed. My question is since we have included Deemed interest in tax calculation. Do we still include it after reversal of impairment? I am more interested in the tax treatment of the transaction.

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    Did it result in a tax charge? If not then I would ignore it. If it did result in a charge then I would reverse it

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