The Supreme Court recently rendered a significant ruling concerning whether the Levy for Employment of Persons with Disabilities (the “Disability Employment Levy”) constitutes a deductible expense (public impost) under the Corporate Income Tax Law (the “CITL”) (Supreme Court Decision 2024Du30809, March 12, 2026; the “Ruling”). The core details of the Ruling and its practical takeaways for businesses are outlined as follows.

Historically, companies have treated the Disability Employment Levy as a non-deductible expense for corporate income tax purposes. This practice was based on an authoritative decision by the Ministry of Economy and Finance (the “MOEF”), which classified the Disability Employment Levy under Article 33 of the former Act on the Employment Promotion and Vocational Rehabilitation of Persons with Disabilities (the “Disability Employment Act”) as a non-deductible public impost under Article 21 (5) of the former CITL (i.e., before amendment as of December 31, 2024). The MOEF’s interpretation, however, was overturned by the recent Ruling, which clarified that the Disability Employment Levy does not constitute a non-deductible public impost, but rather a deductible expense for corporate income tax purposes.

Article 21 (5) of the former CITL provided that “public imposts imposed as a sanction for non-performance of statutory obligations, or for violations of prohibitions and restrictions, are not tax-deductible when calculating a domestic corporation’s taxable income for each business year.”

Based on this provision, the MOEF issued an authoritative ruling in 2018, holding that a Disability Employment Levy under Article 33 of the former Disability Employment Act is a type of public impost (i.e., imposed as a sanction for the non-performance of obligations) under Article 21 (5) of the former CITL, and thus, a Disability Employment Levy reported and paid after the date of the MOEF’s decision is not tax-deductible (Corporate Income Tax Division, MOEF-145, February 21, 2018).

Against this backdrop, the plaintiffs in the Ruling initially reported and paid their corporate income tax by treating the Disability Employment Levy as non-deductible when filing their corporate income tax returns. Subsequently, the plaintiffs filed a tax refund request, arguing that the Disability Employment Levy does not constitute a “public impost imposed as a sanction” under Article 21 (5) of the former CITL and should therefore be a deductible expense. The tax authority rejected the tax refund request on the grounds that the Disability Employment Levy does qualify as a “public impost imposed as a sanction.” In response, the plaintiffs initiated a tax appeal procedure seeking cancellation of this rejection.

The Supreme Court ruled that while the Disability Employment Levy is a public impost levied for failure to meet disability employment quotas, it cannot be deemed as a public impost “imposed as a sanction,” and thus, does not fall under Article 21 (5) of the former CITL, which specifically denies deductions for “public imposts charged as a sanction for non-performance of obligations under relevant laws.”

The Supreme Court provided three specific grounds for this decision: (i) the requirements for non-deductibility under the CITL must be strictly interpreted in accordance with the principle of no taxation without law; (ii) the Disability Employment Levy is fundamentally a business expense that arises from ordinary business operations, assets, and transactions; and (iii) fines and administrative fines—prime examples of charges imposed as “sanctions” for non-compliance—require the existence of liability factors, such as intent or negligence, for their imposition, whereas the Disability Employment Levy uniformly triggers a payment obligation regardless of any consideration of liability factors, such as willful misconduct or negligence.

Following the Ruling, companies that previously treated the Disability Employment Levy as a non-deductible expense for corporate income tax purposes may consider filing a refund claim within the standard five-year window from the statutory corporate income tax filing deadline. Furthermore, the legal principles established in the Ruling can be used as a valuable reference for determining the deductibility of various other mandatory charges borne by companies.

It should be noted, however, that Article 21 (5) of the CITL—the provision at the center of the Ruling—was amended, effective fiscal year 2025, as follows.
 

The Ruling, while acknowledging that the Disability Employment Levy constitutes a public impost imposed “on the ground of non-performance of the legal obligation to employ the disabled,” clarified that it was not a “public impost imposed as a sanction.” However, the CITL, as amended on December 31, 2024, removed the phrase “as a sanction” and changed the wording to “by reason of.” Therefore, since January 1, 2025, when the amended Article 21 (5) of the current CITL became effective, it is likely that that the Disability Employment Levy will be deemed non-deductible, even under the logic of the Ruling.

In particular, after the Ruling, the Ministry of Finance and Economy interpreted that the Disability Employment Levy (i) does not constitute a non-deductible public impost when applying the former CITL, but (ii) constitutes a non-deductible public impost under Article 21 (5) when applying the current CITL (Ministry of Finance and Economy’s Corporate Tax Division-415, May 29, 2026). Companies paying the Disability Employment Levy are advised to take these developments into account and review their corporate tax treatment.
 

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