November 2023: UAE Federal Supreme Court Establishes New Tax Principles
January 3, 2024
In a recent taxation dispute brought before the Federal Supreme Court of the United Arab Emirates (“UAE”), the Federal Supreme Court issued a decision in favor of the Federal Tax Authority against an appealing taxpayer, within which it has set forth several principles in respect of Federal taxes in the UAE.
This Article aims to highlight the most important of such principles in order for taxpayers, tax advisors, and tax litigators, to gain a better understanding of the UAE’s legal regime in respect of Federal Taxes.
Tax Principles Established by the Federal Supreme Court
The recent Federal Supreme Court Decision, dated 8 November 2023, establishes the following critical tax principles:
- Primacy of Legislative Authority in Taxation: The court reaffirmed that tax obligations arise solely from legislative enactments. This principle underscores that the determination of tax liabilities, rates, and settlement mechanisms must derive exclusively from the provisions prescribed within the relevant legal framework. Numerous preceding judgments within the UAE have consistently upheld this critical principle.
- Legality and Precision in Taxation Decisions: While tax-imposing decisions issued by the FTA wield significant legal ramifications, the court emphasized their subservience to the overarching legislative framework. Consequently, the due dates for tax payments are tethered to statutory provisions rather than the issuance dates of tax-imposing edicts. This principle highlights the importance of aligning tax administration with the letter and spirit of the law.
- Differential Penalties for Voluntary Disclosure and Late Payments: The court discerned distinct penalties for voluntary disclosures vis-à-vis late tax payments. This distinction enables the FTA to levy late payment penalties for under-settled taxes, notwithstanding their reporting through voluntary disclosures.
- Cumulative Penalties for Multiple Voluntary Disclosures: The court clarified that errors related to Article 55 of the VAT Executive Regulation necessitate penalties for each voluntary disclosure independently. This distinguishes between procedural rules set by the Tax Procedures Law and the main provisions of the VAT legislation, clarifying the difference between procedural and substantive tax rules.
- Jurisdictional Limitations on Penalty Waiver Requests: The court mandated that requests for waiving administrative penalties must be channeled through the avenues stipulated within the Tax Procedures Law to the competent committee. Consequently, petitioning for administrative penalty waivers directly to the judiciary remains categorically outside the scope of permissible actions, underscoring the delineation of authority and procedural channels.
The Federal Supreme Court’s pivotal decision has contributed towards the foundational pillars of the UAE’s Federal tax jurisprudence, emphasizing legislative primacy, procedural integrity, and jurisdictional clarity.
These principles align with the fundamental legal values and promote a clear, fair, and organized tax system in the UAE. Following these principles will help maintain compliance, reduce conflicts, and preserve the integrity of the UAE’s tax structure.
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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