This is to let you know that Director of National Revenue Information (“Authority”) issued a private tax ruling on 26 April 2024, ref. 0111-KDIB1-1.4010.484.2021.15.BS (“Ruling”), where it conceded that losses due to cybercrime may be deductible for tax purposes.
The case with which the Ruling was concerned involved a relationship started by the Applicant with a Vietnamese party (“Supplier”). After one completed wire transfer to Supplier’s bank account in Vietnam, the Applicant received a message that the bank account was replaced with one opened in Sweden. The message was sent as part of the chain of emails discussing details of the business relationship with the Supplier, and cc’d to other people involved in the relationship. But that correspondence resulted from Supplier’s email having been taken over by cybercriminals.
The Applicant argued for the purposes of the Ruling that it has procedures in place and follows them with due diligence to avoid such situations while the fraud was something the Applicant was unable to prevent. In addition, the Applicant immediately reported the incident to the bank and to the police, citing possible fraud to its detriment.
The Applicant considered that although it exercised due diligence in the context of the incident, it was unable to successfully ward off the crime that harmed it. Therefore, the Applicant inquired with the Authority whether it was entitled to treat this expense (loss of funds) as a tax-deductible cost under Article 15(1) of the Corporate Income Tax Act.
The Authority held that a reasonably unavoidable loss incurred due to unforeseeable events can be treated as deductible for tax purposes. It is necessary in each such case to assess whether, in the circumstances of the case, due diligence was exercised and the loss was due to events beyond the taxpayer’s control.
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