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Thailand > Legal Developments > Law firm and leading lawyer rankings


When the spirit of the law shines

2 May 2017 at 04:00


When the spirit of the law shines

The current government has been trying very hard to make Thailand a jurisdiction that places more emphasis on substance and less on surface appearances. This is evident in recent legal reforms, but the attitudes of state authorities remain problematic. Many seem to believe that in order to be patriotic, the private sector must submit to any extra conditions that authorities impose above and beyond the legal framework.

Of greater concern is the fact that the justice sector sometimes joins with tax authorities in the pursuit of treasury revenue by interpreting issues beyond the limit of the law. In this respect, the Minebea ruling, in which a company was required to net all losses and profits from all of its promoted projects together before it could carry forward the net loss, remains traumatic for many companies working under the regime of the Board of Investment (BoI).

In another curious case, the Council of State recently upheld an interpretation of the Customs Department and the Department of Mineral Fuels (rather than the Excise Department) by applying the definition of the "Kingdom of Thailand" under the Petroleum Act to the Excise Tax Act simply to collect taxes, effectively ignoring royal proclamations and the UN Convention on the Law of the Sea that define Thailand's territorial waters. No legal foundation was established for collecting taxes from the companies affected.

Thankfully, there are still cases in which the courts allow the spirit of the law to prevail. It took two separate cases but the outcome ultimately favoured the taxpayer.

The saga began with a fire at a BoI-promoted company that had received exemptions from import duty and business tax (later replaced by value-added tax) in 2001 on imported raw materials used to manufacture goods to be exported from Thailand. The fire left the materials unusable, but the Customs Department said the company had breached the conditions of its tax privileges and demanded import duty. The case was brought to the courts of justice.

The first court ruling adhered strictly to the letter of the law: "The company was granted an exemption of import duty and business tax, only if it utilised the imported raw materials for the manufacturing of the goods for export, and there was no other way that the company could fulfil the condition for such exemption."

As for the company's assertion that it had no intention to breach its BoI conditions, the court said: "Since Section 54 of the BoI Act allowed the BoI to give a warning letter before revoking the promotion certificate where the promoted company appeared not to have an intention to commit such a breach, it meant that the promotion certification could be revoked, even if the company had no intention to breach the condition.

"If the company had not been promoted with the BoI, it would have been liable to pay import duty and business tax right upon the import of raw materials, and had no right to claim refunds, even if the imported raw materials caught fire or were damaged later."

In the same year that the above judgement was made, a fire damaged imported goods at another BoI-promoted company that had similar incentives. It reported the incident to the BoI.

BoI officials initially resolved that the company could write off the raw materials without having to pay import duty. But at a second meeting the decision was reversed. The BoI revoked the company's promotion and said it must pay import duties and VAT, citing the ruling in the earlier court case. This case ultimately reached the Supreme Court.

The Supreme Court ruled last year that the fire was "neither caused by intention, or negligence, of the company. Thus, there was no intentional breach or violation of the conditions, and the incident was out of the company's control".

The court took into account the spirit of the BoI Act by explaining: "[The] intention of the BoI Act for granting the exemption of import duty for raw materials was to promote investment, and to benefit the Thai nation through additional job creation and income, without consuming such raw materials or finished goods that were claimed to cause the state a trade deficit -- which was the basis for the BoI in laying down a condition that the imported raw materials must be utilised for manufacturing of exported goods only."

Based on these reasons, it ruled: "While the raw materials that caught fire were unable to be utilised to manufacture the exported goods, none of them was consumed in Thailand either. As it was impossible for the company to fulfil the conditions laid down by the BoI in this case, its BoI promotion must not be revoked."

The new BoI Act, which has been in effect since the beginning of this year, also exempts import taxes on raw materials used to make exported goods. This recent court case should reassure promoted companies that principles of justice based on the spirit of the law should prevail unless there is an explicit legal provision stating otherwise.

If your sense of righteousness tells you that you have fully complied with the law as well as its spirit, never give up hope simply because someone else lost a similar case earlier.

By Rachanee Prasongprasit and Professor Piphob Veraphong. They can be reached at

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