Tax Dispute Resolution Restructured: Reviews of Tax Assessments

Virtually all tax laws across the world grant tax authorities the power to inspect or audit a taxpayer’s records to ensure tax compliance. Where a taxpayer turns out not to be compliant, the tax authority issues a decision in the form of a tax assessment, determining the correct amount of due tax, often accompanied with a penalty assessment for the relevant applicable penalties.

As tax assessments are decisions with significant potential impact on taxpayers’ revenues and profits, sometimes even threatening the continuity of the business operated by the taxpayer, tax legislations around the world allow taxpayers to dispute such assessments.

This article dives into the details of the recent amendment to the United Arab Emirates’ (“UAE”) tax dispute resolution process and elaborates on key points that are of importance to taxpayers.

Historical Background

Since the implementation of taxes in 2017, the UAE adopted a 3-stage tax dispute resolution structure. Recent legislative amendments introduced in the UAE led to an interesting restructuring of the tax dispute resolution process through the introduction of a new stage into the process.

Under the now-repealed Federal Law No. 7 of 2017 on Tax Procedures, where a taxpayer disagreed with the UAE’s Federal Tax Authority’s (“FTA”) tax assessment, it had the option to resort to a 3-stage dispute resolution process, consisting of:

1. Requesting the FTA to reconsider its decision.
2. Object before the Tax Dispute Resolution Committee (“TDRC”) if it did not agree with the FTA’s decision in respect of the reconsideration request.
3. Appeal before the competent courts if it did not agree with the TDRC’s decision in respect of the objection raised before it.

The first stage was generally thought of as amicable, since the matter concerned none other than taxpayer himself and the FTA. The remaining two stages were of a litigious nature, involving independent third parties in the dispute resolution process.

It was not possible for a taxpayer to proceed to the next stage of the dispute resolution process without completing the previous ones before that. All three stages were mandatory and none of them could be skipped if the taxpayer wanted to continue with the dispute resolution process.

A New Stage for Dispute Resolution

On September 30, 2022, Federal Decree-Law No. 28 of 2022 on Tax Procedures was issued, replacing the previous Federal Law No. 7 of 2017. The new Decree-Law restructured the tax dispute resolution process in the UAE through introducing a new optional stage available to taxpayers.

According to Article 28 of the new tax procedures law, a new stage of “tax assessment review” is introduced as a stage preceding the reconsideration stage. A tax assessment review is an amicable and optional stage that taxpayers may choose to opt for or skip directly into the reconsideration stage at their own discretion, whereby taxpayers request the FTA to review a tax assessment issued by it based on reasons provided by the taxpayer explaining inaccuracies or fallacies within the tax assessment.

As evidenced in its name, the new stage is only available for taxpayers disputing a tax assessment. Other decisions issued by the FTA do not qualify for a tax assessment review, falling outside the scope of the new stage. A review of a tax assessment is an available option whether the taxpayer is disputing the tax assessment wholly or partly, and extends to cover the related administrative penalties resulting from the conclusions within the tax assessments.

Timelines

Upon being notified of a tax assessment and related penalties by the FTA, taxpayers may choose to proceed with one or more of the following approaches:

• Request a review of the tax assessment and related penalties, within an extendable period of 40 business days from the date of notification of the FTA’s decision.
• Request a reconsideration of the tax assessment and related penalties, within an extendable period of 40 business days from the date of notification of the FTA’s decision.
• Submit a voluntary disclosure against the tax assessment within a period of 20 business days (or amend through the next tax return, where applicable) from the date of becoming aware of the error. It is important to note that where the error is corrected through a tax return rather than a voluntary disclosure, the relevant administrative penalties will likely not be automatically reversed.
• Accept the tax assessment but request a waiver of the related penalties within a certain time period (the time period was not yet specified by the FTA).
• Accept the tax assessment but request to settle the related penalties in instalments (there is no time limit for the submission of such request).
• Accept the tax assessment and related penalties in accordance with the FTA’s decision.

The recommended choice(s) for each taxpayer varies based on their own unique circumstances, background, facts, amounts involved, and other factors.

The Relationship Between Tax Assessment Reviews and Other Options Available

When considering whether a tax assessment review is a suitable option or not, it is important to understand how tax assessment reviews affect, or are affected by, other options available to taxpayers. Hence, the below should be taken into consideration when determining whether a tax assessment review is a suitable option:

Tax Assessment Reviews and Reconsiderations

If a taxpayer files a reconsideration request to the FTA in respect of a specific tax assessment and related administrative penalties, the taxpayer will no longer be able to resort to a tax assessment review request, and any pending tax assessment review request will be disregarded by the FTA.

Where a taxpayer opts for a tax assessment review request, the taxpayer will be able to request a reconsideration of the FTA’s decision in respect of the tax assessment request within 40 business days from the date of notification of the FTA’s decision or the expiry of 45 business days (or the extended timeline determined by the FTA) from the date of submitting a request for a tax assessment review.

Tax Assessment Reviews and Voluntary Disclosures

Contrary to the relationship between tax assessment reviews and reconsiderations, the applicable tax legislation is silent on the relationship between tax assessment reviews and voluntary disclosures. Therefore, it is implied that both a tax assessment review request and a voluntary disclosure may be submitted simultaneously to the FTA in relation to the same tax assessment, subject to being submitted within the specified timelines.

However, it is not clear at this point in time how the FTA would react where both a tax assessment review request and a voluntary disclosure are submitted simultaneously in relation to the same tax assessment decision. It is likely that the FTA’s decision in relation to either one of the requests will ultimately determine the outcome of the other request.

The law is further silent on whether it is permissible to submit a voluntary disclosure against the FTA’s decision on the tax assessment request. This will largely depend on whether the FTA’s decision in respect of a tax assessment request qualifies as a ‘tax assessment’ in its own right. It could be that where the FTA amends the previous tax assessment, then this ‘amendment’ would qualify as a ‘tax assessment’, and vice versa. With no guidance available from the FTA in this regard, it is difficult to foresee the FTA’s course of action.

Tax Assessment Reviews and Penalty Waivers or Settlement through Instalments

As is the case with the relationship between tax assessment reviews and voluntary disclosures, the applicable tax legislation is silent on the relationship between tax assessment reviews and penalty waiver or settlement through instalments. Therefore, it is implied that both a tax assessment review request and a penalty waiver or settlement through instalments request may be submitted simultaneously to the FTA in relation to the same tax assessment and related penalties, subject to being submitted within the specified timelines.

However, especially in relation to penalty waiver requests, the FTA may specify different timelines depending on whether a tax assessment review request was submitted or not. 

It is not clear at this point in time how the FTA would react where both a tax assessment review request and penalty waiver or settlement through instalments request are submitted simultaneously in relation to the same tax assessment decision. It is likely that the FTA’s decision in relation to the tax assessment review request will have a significant impact on the FTA’s decision in relation to the penalty-related requests.

Conclusion

With such a rapidly evolving and developing tax legislative environment and constant developments, especially taking into consideration the complexities arising from such rapid development such as the extent and applicability of transitional rules, as well as measures that need to be urgently adopted by taxpayers to ensure tax compliance, it is crucial to stay up to date with all new developments and consider seeking professional advice.

While understanding and complying with the tax laws may be complex, doing so is critical for maintaining the financial health and reputation of businesses, as well as the economic stability of the UAE. If you are unsure about your obligations, it is recommended to seek advice from a legal/tax professional.

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 or any of the members of our team.

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