On 09 March 2017, Thailand's Board of Taxation issued Ruling No 40/2560, which repealed its previous Ruling No 10/2528 and prescribes that Section 65 ter (6) of the Revenue Code does not only deny corporate tax deductions for law violation costs paid under the Revenue Code but also denies corporate tax deductions for law violation costs paid under other laws as well.

Section 65 ter (6) of the Revenue code prescribes that tax penalties, surcharge and fines paid by a company are not allowed as deductions for computing net profit for corporate tax.

But back in 1985, Thailand's Board of Taxation issued Ruling No 10/2528 that said the words - “tax penalties, surcharges and fines” - mean tax penalties, surcharges and fines under the Revenue Code only (and therefore, tax penalties, surcharges and fines under other laws are allowed as deductions).

The reason given for this Ruling was that if a company was not permitted to claim tax penalties, surcharge and fines imposed under other laws, then Section 65 ter (6) was "depriving a company of rights”.

In December 2011, the Central Tax Court ruled in a case between a taxpayer and the Revenue Department (Case No 55/2554), saying that:

• The provision in Section 65 ter (6) of the Revenue Code prescribes that tax penalties, surcharge and fines are not allowed as expenses;
• When the Court considers the spirit of the law, Section 65 ter (6) is there so as to not permit a company violating the laws to claim the costs incurred for its violations;
• If this provision allows law violators to claim violation costs as expenses for income tax purposes, this is like giving a subsidy to companies that violate the laws;
• Although the BoT's 1985 Ruling has final status under Section 13 septem of the Revenue Code, the last paragraph of Section 13 septem subjects final status to a judgment of a Court; and therefore
• This Court's judgment is that Section 65 ter (6) of the Revenue Code does not only deny tax penalties, surcharge and fines paid under the Revenue Code law, but also denies tax penalties, surcharge and fines paid under other laws as well.

In February 2016, the Supreme Court ruled in Case No. 1109/2559 that it not only agrees with the Central Tax Court’s views that Section 65 ter (6) denies penalties, surcharge and fines paid under laws as well, but Section 65 ter (13) would also deny such penalties, surcharge and fines because such costs are not exclusively incurred for the purpose of acquiring profits or for the purpose of business. 

Thereafter, with the Supreme Court's ruling in its favor, the Revenue Department asked the Board of Taxation to reconsider it's 1985 Ruling, and whilst for 32 years the Board's 1985 Ruling has been allowing costs incurred for violating other laws as tax deductions under Section 65 ter (6), on 09 March 2017, the Board issued Ruling No 40/2560, repealing its previous Ruling No 10/2528, and prescribing that Section 65 ter (6) does not only deny tax deductions for penalties, surcharge and fines that are paid under the Revenue Code law, but it also denies tax deductions for law violation costs that are paid under other laws as well.

---