December 2023: UAE Federal Supreme Court Reverses Verdict Accusing Company Driver of Tax Evasion
January 31, 2024
In a recent legal development, the Federal Supreme Court of the United Arab Emirates handed down a significant decision in a criminal tax evasion case involving allegations of tax evasion. This ruling, which diverged from the judgments of both the Federal Court of First Instance and the Federal Court of Appeal, favored the individual accused of the offense. This article seeks to provide an in-depth exploration of the case, shedding light on its details and implications.
At the heart of the matter is an accusation by the Public Prosecution that the suspect collaborated with two others in the commission of tax evasion. The alleged purported method involved storing excise goods without the requisite digital tax stamp, leading to the evasion of AED 496,300 in Excise Tax and AED 47,915 in Value-Added Tax. Notably, the accused, employed as a driver in a company, claimed to have merely followed instructions to transport the goods from one location to another.
The Federal Court of First Instance, in its initial ruling, found the accused guilty of tax evasion and imposed a substantial monetary fine amounting to 300% of the evaded taxes. Discontented with this decision, the accused appealed to the Federal Court of Appeal, which, unfortunately, upheld the initial ruling. Undeterred, the accused then escalated the matter to the Federal Supreme Court, contesting the verdict on grounds of law violation and erroneous application. Key arguments included the absence of essential elements for a tax evasion crime, falling outside the scope of the criminalizing provisions, an inability to object to employer orders, and lack of awareness regarding the nature of the transported goods.
On December 19, 2023, the Federal Supreme Court delivered a momentous judgment, deeming the appeal valid and overturning the decision of the Federal Court of Appeal. The case was remitted back to the lower-level courts for further investigation, with the Federal Supreme Court basing its decision on the following crucial principles:
- To be implicated in tax evasion, an individual must be actively engaged in business operations and bear a legal obligation to settle taxes.
- The commission of tax evasion offenses hinges on a specific intent to circumvent tax liabilities, necessitating an awareness of the wrongful actions undertaken.
- The accused contended in the lower-level courts that they were not personally involved in the alleged tax evasion but merely functioned as a driver for the culpable company. However, there arguments were dismissed by the lower-level courts without adequate substantiation for such dismissal.
- The lower-level courts failed to provide a comprehensive examination of the constituent elements of the tax evasion offense and whether they were applicable to the accused in the present case.
In conclusion, the Federal Supreme Court’s ruling in this tax evasion case signifies a pivotal moment in the interpretation and application of tax laws in the UAE. By emphasizing the need for a direct involvement in business activities and a conscious intent to evade taxes, the court has set a precedent that underscores the importance of a meticulous examination of the elements of the alleged crime. This decision not only vindicates the accused individual but also serves as a benchmark for future cases involving tax evasion allegations, providing clarity on the requisite conditions for such charges to stand.
This Article is prepared by Mohamed El Baghdady, Head of Tax and Financial Crimes, and Marwan Alnooryani, Senior Tax Associate, at Habib Al Mulla & Partners Law Firm.
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