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November 2023: UAE Federal Supreme Court Establishes New Tax Principles

January 3, 2024

Introduction

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

Conclusion

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.

Seek Legal Counsel

Our expertise in tax law and regulations allows us to provide clients with effective and accurate tax advice, taking into consideration their unique circumstances and needs. Additionally, our experience and knowledge in handling tax disputes enable us to represent clients in discussions with tax authorities, as well as in court proceedings. 

Our track record of successfully resolving tax disputes and helping clients minimize their tax liabilities has likely earned us a reputation as a trusted and reliable tax advisor. Our tax and financial crimes team, led by our Head of Tax and Financial Crimes, Mohamed El Baghdady, has successfully advised and represented clients across various industries, including, but not limited to, consumer goods and retail, services, real estate, oil & gas and banking and finance, before the government authorities, tax tribunals and courts. Our clients have been successful in multiple tax disputes before the committees and courts.

For further information, please contact, Mohamed El Baghdady, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com.

The content provided in this article is intended for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy and completeness of this information, the article does not offer a guarantee or warranty regarding its content. The matters discussed in this article are subject to interpretation, and legal outcomes may vary based on specific facts and circumstances. We recommend that readers seek individual legal counsel before making any decisions based on the information provided. If you require specific legal advice, please contact us directly.

Contacts

Mohamed El Khatib

Principal Partner – Head of Disputes

mohamed.elKhatib@habibalmulla.com

Mohamed ElBaghdady

Senior Associate
mohamed.elbaghdady@habibalmulla.com

Marwan Alnooryani

Senior Associate
marwan.alnooryani@habibalmulla.com

Basem Ehab

Associate
basem.ehab@habibalmulla.com

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