UAE: Supreme Court continues its rulings in favour of tax payers, sets another landmark principle

In brief

Habib Al Mulla & Partners, a member firm of Baker & McKenzie International successfully represented a global e-commerce company in a series of appeals filed against administrative penalties imposed by the Federal Tax Authority (FTA) in connection with delayed payment of VAT due. The UAE Federal Supreme Court recently dismissed an appeal filed by the FTA to impose administrative fines and penalties against the company, and ordered that the FTA to repay the full amount of the penalties to the company.


Contents

Habib Al Mulla & Partners, a member firm of Baker & McKenzie International had also successfully represented the company at all stages of the dispute resolution process: before the Court of Appeal, Court of First Instance, and Court Appointed Experts. Both the Court of First Instance and Court of Appeal had also rejected the FTA's appeal against the decision of the TDRC, and allowed the company's counter appeal against the decision of the TDRC (in doing so, both Courts held that no penalties should be due based on the court experts' findings).

The Federal Supreme Court held that the administrative penalties were imposed on the incorrect premise that the company was late in paying the due tax, as the delay mainly stemmed from the FTA's failure to share the correct transfer details for payments from abroad, as published by the FTA at the relevant time.

The company had, in this case, taken all necessary steps to communicate with the FTA and the Central Bank to address the issue. After the lapse of a considerable time, the matter was resolved and payment was received by the FTA. Nonetheless, given the lengthy delay before the company was able to obtain the required details to make the payment, significant delay penalties were assessed by the FTA on the company.

The company therefore took all the necessary legal procedures to challenge the administrative penalties imposed before the competent courts.

The Court, in this case, deemed that the decisive factor in the matter was the actual date for enabling the company to transfer the due tax amount according to the details provided by the FTA, which is the date the Central Bank amended the details (in order to correct the transfer details provided by the FTA). That then enabled the company to complete the transfer process. These facts were confirmed by the opinion given by the court appointed expert as mandated by the court.

The UAE legislature has also adopted this approach (which the Court concluded in the present Case) in Cabinet Resolution No. (105) of 2021 concerning the Controls and Procedures of the Administrative Penalty Waiver and Installment, as Article (4) of this Decree stipulated that: "The administrative penalty waiver shall be applied if the following condition is met: ... E. There is a general defect in the Authority’s systems, payment systems, or used telecommunications services, whenever this is a direct cause of a group of persons’ failure to implement tax duties on their time."

This judgment sets a final and conclusive precedent that could be very relevant in the consideration of several ongoing tax challenges, including any other taxes. It establishes a clear principle pertaining to the appropriate conditions for the "waiver of administrative penalties".

The Federal Supreme Court’s relevant reasoning is set out in the Annex hereto.

Challenge process

These judgments confirm the robustness of the UAE judiciary with respect to the adjudication of tax matters, upholding taxpayers' lawful rights to challenge the FTA’s assessment on taxes and penalties. When challenging the FTA’s assessment, taxpayers should adhere to the specific procedures and timeline for re-calculations, re-considerations and objections before the TDRC and the relevant UAE courts.

Seek legal counsel

Over the last two years, Habib Al Mulla & Partners, a member firm of Baker & McKenzie International has increasingly been instructed to handle multiple first-of-its kind cases involving complex issues of VAT, excise duty, and penalties relating to tax returns and voluntary disclosures and others. The matter was led by senior lawyer Mohamed El Baghdady who specializes in tax litigation. We have successfully represented clients across various industries, including consumer goods and retail, services and banking and finance, before the tax tribunals and courts.

We are happy to support you throughout the challenge process in relation to your taxes and penalties. For further information, please contact Mohamed El Baghdady and Reggie Mezu, members of our UAE Tax Litigation team.

Download alert

* * * * *

This alert is prepared by Mohamed El Baghdady (Senior Associate, Tax Litigation, Dubai).

 


LOGO_UAE_BM Habib Al Mulla_Abu_Dhabi_Dubai

© 2022 Habib Al Mulla & Partners, a member firm of Baker & McKenzie International. All rights reserved. Habib Al Mulla & Partners, a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.


Copyright © 2023 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.