Navigating the landscape of tax disputes in the United Arab Emirates presents unique challenges for taxpayers and legal practitioners alike. Central to this environment is the “pay now, argue later” system, a framework that mandates taxpayers to settle disputed taxes before contesting decisions through legal channels. This approach has sparked considerable debate regarding its fairness and constitutional validity. Drawing on our extensive experience at Wasel & Wasel in over 300 tax dispute procedures, we delve into the intricacies of this system and explore the recent judgment by the UAE Federal Supreme Court that upholds its constitutionality. The “pay now, argue later” system operates on a straightforward principle: when a taxpayer challenges a decision by the Federal Tax Authority (FTA), they must first pay the full amount of the disputed taxes during the second step of the dispute process before the competent tax dispute resolution committee. If the taxpayer fails at the committee stage, they may escalate to the federal primary court. At this stage, the requirement shifts slightly; taxpayers must pay half the value of the penalties in dispute to grant the primary court jurisdiction. This system ensures that tax revenues are collected promptly while providing a structured pathway for dispute resolution. We have observed firsthand the impact of this system on taxpayers. Clients frequently express reservations about the necessity of paying disputed taxes upfront. Concerns center around the financial burden imposed on individuals and businesses, particularly when the outcome of the dispute is uncertain. Taxpayers often question the equity of this requirement, fearing that it may disproportionately affect those with limited financial resources or those facing substantial penalties. The crux of the debate lies in whether this system aligns with the principles enshrined in the UAE Constitution, particularly regarding equality before the law and the right to access the judiciary without undue hindrances. These concerns were addressed in a landmark judgment by the UAE Federal Supreme Court in case number 928/2023 AD, which examined the constitutionality of the “pay now, argue later” approach. In its ruling, the Supreme Court emphasized the principle of equality before the law as a cornerstone of the UAE Constitution. The court stated: “The Constitution of the United Arab Emirates ensures the principle of equality before the law and guarantees its application to all citizens as the foundation of justice and freedom. It recognizes that the aim pursued is primarily the rights and freedoms of citizens in the face of discriminatory phenomena that undermine or restrict their practice. The emergence of discrimination is based on origin, gender, language, religion, or creed and is not limited exclusively. The Constitution also guarantees the right to litigation for all people.” This declaration underscores that the “pay now, argue later” system does not infringe upon the constitutional mandate of equality. Instead, it operates within the framework designed to balance the social function of taxation with the protection of property rights. The court recognized that while taxation is a legitimate exercise of state authority, it must be regulated in a manner that considers the social utility of taxes and the necessity of maintaining public services and infrastructure. Furthermore, the judgment addressed the right to access the judiciary, a fundamental right enshrined in the Constitution. The court affirmed: “It also guaranteed the empowerment of every litigant to access the judiciary easily without being burdened by financial obligations or procedural obstacles. This access means that every individual has the right to resort to the judiciary, whose doors are not closed to anyone seeking to benefit from them. The path to it is paved by law.” While acknowledging the importance of this right, the court also recognized the state’s legitimate interest in ensuring the efficient collection of taxes. By requiring taxpayers to pay disputed amounts before challenging decisions, the system aims to prevent the undue accumulation of tax liabilities and ensure the steady flow of revenue necessary for public services. The Supreme Court further elaborated on the legislative authority over taxation, highlighting that the legislative branch holds the primary responsibility for determining tax laws, including their application and assessment. The court stated: “The legislative authority is the one that holds the reins of public taxation, as it undertakes to regulate its conditions through laws issued by it, designed to determine its scope and assessment principles, specify its amount, and oblige its performance. It also establishes the rules for its calculation, analysis, and collection, as well as the procedures for its payment, the statute of limitations, and what appeals can be made against it, encompassing everything related to the tax and its collection framework.” This clarification asserts that the legislature is empowered to set the framework within which tax disputes are resolved, provided that these regulations do not infringe upon constitutional rights. In this context, the “pay now, argue later” system was deemed a lawful exercise of legislative authority, designed to uphold the Constitution’s mandates while facilitating effective tax administration. Moreover, the court underscored the importance of procedural fairness within the system. The judgment noted: “Cases of non-acceptance of submissions or appeals as stated above are merely legislative regulations. They fall within the discretionary authority of the body regarding methods of tax collection, submitting them to the established authority for collection, and appealing them before the judiciary. They do not infringe upon the principle of equality and equal opportunities granted by Articles (14) and (25) of the Constitution.” This indicates that while the system requires upfront payment, it also provides structured avenues for taxpayers to contest decisions, thereby ensuring that their legal rights are preserved. The requirement to pay half the penalties before escalating to the federal primary court serves as a compromise, balancing the need for revenue collection with the taxpayer’s ability to challenge assessments without bearing the full financial burden initially. Given that the requirement to pay taxes arises at the tax dispute resolution committee stage, it is imperative for taxpayers to engage expert tax dispute counsel early on during audits, voluntary disclosures, or reconsideration requests to address liabilities before they

In a monumental decision, the Dubai Court of Cassation has issued a groundbreaking judgment in Case No. 756/2024, reshaping the arbitration landscape in the country. This judgment confirms that arbitral tribunals operating under the ICC Rules have the authority to award legal fees to parties, even if not explicitly stated in the arbitration agreement. This marks a significant departure from previous rulings that limited such recoverability. At Wasel & Wasel, we had the honor of representing the successful party in this landmark case. We presented arguments emphasizing that Article 38(1) of the ICC Rules inherently empowers arbitral tribunals to award legal fees, as they form an integral part of the costs incurred by parties during arbitration. We referenced authoritative sources and interpretations by the ICC, which clarify that arbitration costs include not only the fees and expenses of the arbitrators and administrative expenses but also the legal fees and expenses of the parties. Reversing Previous Limitations Historically, the courts in Dubai held a narrow view on the recoverability of legal fees in arbitration. In prior cases over the years, the Dubai courts had determined that unless the arbitration agreement or the arbitration rules explicitly granted the tribunal the power to award legal fees, such costs could not be recovered. This interpretation posed challenges for parties seeking to fully recover their arbitration expenses. The Court’s Reasoning In this recent judgment, the court examined Article 38(1) of the ICC Rules, which states: “The costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scale in force at the time of the commencement of the arbitration, as well as the fees and expenses of any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration.” The court emphasized that when the wording of a legal provision is clear and unambiguous, it should be applied as written without resorting to interpretation that alters its meaning. The use of the word “include” indicates that the list of costs is not exhaustive, thereby encompassing legal fees incurred by the parties. The court further noted that the phrase “and other reasonable costs incurred by the parties for the arbitration” is broad and unrestricted, covering various costs without limitation. This interpretation aligns with common practices in international arbitration, recognizing that legal fees are a significant component of the costs parties incur. The court reasoned as follows [translated]: “And the legal costs, which include lawyers’ fees paid by the parties to the legal representatives who represent them in arbitration proceedings, are considered reasonable costs incurred by the parties in arbitration. Therefore, they are deemed arbitration expenses that are estimated and awarded by the arbitral tribunal according to the text of the first paragraph of Article 38 of the aforementioned rules. This is not altered by the argument that the absence of an explicit mention of legal representatives’ fees—as is explicitly stated in the first paragraph of Article 36 of the 2022 Rules of Arbitration of the Dubai International Arbitration Centre—would mean they are not considered arbitration expenses. This is because such an absence does not imply that the drafter of the ICC Rules intended to exclude the arbitral tribunal’s jurisdiction to award lawyers’ fees after including the phrase ‘and other reasonable expenses incurred by the parties in arbitration,’ which encompasses all reasonable costs incurred by the parties, including legal costs like lawyers’ fees. Furthermore, asserting otherwise contradicts the consistent practice of the ICC Rules, where Article 37(1) of its rules effective since 2012 includes the phrase ‘reasonable legal costs and other expenses incurred by the parties in arbitration.’ According to the ICC Guide, which provides commentary on these rules, the arbitral tribunal considers the following categories of recoverable costs: (a) fees and expenses of the parties’ lawyers. This same text appears in Article 38(1) of its rules effective since 2017. Moreover, international arbitration practices applying these rules have established that lawyers’ fees are included among the reasonable costs incurred by the parties in arbitration, which are estimated and awarded by the arbitral tribunal.” Implications for Arbitration in Dubai This judgment has practical implications for arbitration proceedings in Dubai. The court’s decision brings Dubai’s arbitration practices closer to international standards, which commonly allow for the recovery of legal fees as part of arbitration costs. This alignment enhances the jurisdiction’s appeal to parties seeking arbitration consistent with global practices. Parties can now approach arbitration in Dubai with increased confidence that they can recover reasonable legal fees, which may influence their decision to arbitrate disputes in this jurisdiction. This greater certainty reduces the financial risk associated with arbitration and ensures that parties are more likely to be fully compensated for their legal expenses if successful. Moreover, arbitral tribunals operating under the ICC Rules now have clear authority to award legal costs. This clarification contributes to more predictable and fair outcomes in arbitration proceedings, as tribunals can ensure that successful parties are not unduly burdened by their legal expenses. Our involvement in this case reflects our commitment to contributing to the development of arbitration law in the region. By advocating for a practical interpretation of the ICC Rules that recognizes the full scope of recoverable costs, we aim to support efficient and equitable dispute resolution processes. We believe that this decision will positively impact parties considering arbitration in Dubai, offering a clearer understanding of the potential costs and recoveries involved. Conclusion The Dubai Court of Cassation’s judgment in Case No. 756/2024 provides important clarification on the recoverability of legal fees under the ICC Rules. By affirming that legal fees are included in the costs of arbitration, the court has enhanced the predictability and fairness of arbitration proceedings in Dubai. At Wasel & Wasel, we are pleased to have led litigation to this outcome. Our focus on practical solutions and thorough legal analysis was instrumental in achieving a result that benefits not only our client but also

The recent judgment by the UAE Federal Supreme Court in Case No. 629 of 2024 marks a significant advancement in the interpretation of value-added tax (VAT) laws concerning employee benefits. This ruling provides critical guidance on how companies should handle VAT related to housing expenses provided to employees. In this case, a company sought to recover input VAT incurred on expenses for providing housing to its employees, accommodating job candidates, and offering hotel stays during marketing campaigns. The company argued that these expenses should be exempt from VAT and that it was entitled to reclaim the input VAT paid. The Federal Supreme Court delved into whether expenses such as water, gas, and electricity fall within the concept of a housing allowance. According to the court, these utilities “are outside the concept of housing allowance that is considered a component of the salary as an in-kind benefit granted to the employee by the employment contract and fall within services that must be reclaimed in respect of VAT.” The court emphasized that unless these expenses are explicitly included in the employment contract, they cannot be deducted from the tax base. Furthermore, the court highlighted the necessity of precise documentation in employment contracts. Article 10 of Cabinet Decision No. 1 of 2022 stipulates that “the employment contract must contain… the agreed wage, including benefits and allowances.” This means that any in-kind benefits, such as housing allowances or utility payments, must be clearly defined in the contract to be considered for VAT exemption. The court found that the lower court had failed to verify whether these expenses were included in the employment contracts. “The judgment under appeal did not properly examine whether these expenses were included in the employment contract… It has violated the law and must be reversed,” the court stated. This oversight led to the reversal of the lower court’s decision and a remand for further examination. This ruling underscores the importance for companies operating in the UAE to structure their employment contracts. By clearly outlining all benefits and allowances, companies can ensure compliance with VAT regulations and avoid unexpected tax liabilities. For businesses, this judgment serves as a crucial reminder of the intricate relationship between employment law and tax obligations. Companies must be vigilant in documenting all aspects of employee compensation to optimize their tax positions and comply with the law. At Wasel & Wasel, we understand the challenges that companies face in this area. With our experience in over 300 tax procedures collectively valued at over USD 1 billion, we are well-equipped to assist businesses in navigating these complexities. Our team is dedicated to providing clear, practical advice to ensure that our clients remain compliant while maximizing their operational efficiency. The Federal Supreme Court’s decision represents a pivotal moment in the interpretation of VAT laws related to employee benefits. It highlights the need for businesses to be proactive in reviewing and updating their employment contracts and tax strategies.

  In a recent decision by the Dubai Court of Appeal, Judgment No. 829 of 2023, the court identified the criminal conviction of a former employee who was found guilty of both embezzling funds and engaging in virtual asset service activities without obtaining the necessary license from the relevant regulatory authorities. This case serves as a critical reminder of the legal obligations that come with handling virtual assets and the severe consequences of failing to adhere to them. The court’s findings were rooted in the criminal judgment from an earlier case, Criminal Case No. 16363 of 2021, where it was established that: “the defendant was convicted of embezzling funds belonging to one of the plaintiff’s clients, [redacted], in addition to being convicted of engaging in virtual asset service provider activities without obtaining the necessary license from the relevant regulatory authorities.” The connection between the defendant’s embezzlement and his unlicensed activities in the virtual asset space cannot be understated. The court recognized that by operating without a license, the defendant not only breached regulatory requirements but also facilitated his illicit activities. Deductively, engaging in unregulated virtual asset services provided the defendant with opportunities to handle and misappropriate client funds, which ultimately led to his conviction. In Dubai, the regulation of virtual asset service providers is overseen by the Virtual Assets Regulatory Authority (VARA) for mainland activities and the Dubai International Financial Centre regulates operations in its respective jurisdiction which mandates that any entity offering services in Dubai related to virtual assets must obtain the appropriate licenses. These regulations are designed to protect investors, maintain the integrity of the financial system, and ensure that all transactions involving virtual assets are conducted transparently and lawfully. The defendant’s failure to obtain the necessary license from VARA or otherwise was not a minor oversight; it was a fundamental breach of the regulatory framework that governs virtual assets in Dubai. Operating without a license meant that the defendant’s activities were outside the purview of regulatory oversight, allowing him to engage in transactions that were both unmonitored and unregulated. This lack of oversight was seemingly connected to the crime of embezzlement of funds, as there were no regulatory checks in place to detect or prevent the misuse of client assets. The court’s decision underscores the serious consequences of engaging in virtual asset service activities without proper licensing. It highlights that unlicensed activity in this sector is not just a regulatory breach—it can also be a gateway to criminal behavior, such as the embezzlement of funds. The connection between unregulated virtual asset services and the illicit obtainment of funds in this case serves as a clear warning to others in the industry. In summary, the Dubai Court of Appeal’s ruling in Judgment No. 829 of 2023 / Criminal Case No. 16363 of 2021 strongly affirms the importance of regulatory compliance in the virtual asset sector. The case demonstrates that operating without a license is not only illegal but also potentially criminal, especially when it leads to misappropriation of client funds. As the virtual asset market continues to grow, the need for stringent regulatory oversight and compliance becomes ever more critical. This judgment serves as a reminder that the consequences of ignoring these regulations can be severe, leading to criminal convictions and significant legal repercussions

  In a significant evolution of the UAE judiciary’s approach to cryptocurrency, the Dubai Court of First Instance has made a landmark ruling in 2024, effectively recognizing the payment of salaries in cryptocurrency under employment contracts. This decision, rendered in case number 1739 of 2024 (Labour), represents a notable departure from a previous judgment by the same court in 2023, where a similar claim involving cryptocurrency was denied due to the employee’s failure to provide a precise valuation of the digital currency. Case Background and Summary The case arose when the plaintiff employee filed a lawsuit claiming unpaid wages, wrongful termination compensation, and other related employment benefits. The plaintiff’s employment contract stipulated a monthly salary in fiat currency and an additional 5,250 EcoWatt tokens, a form of cryptocurrency. The dispute centered on the defendant’s failure to pay the EcoWatt token portion of the salary for six months and the allegedly wrongful termination of the plaintiff’s employment. The court’s disposition is particularly noteworthy for its recognition and enforcement of cryptocurrency as a valid form of remuneration, despite the traditional payment norms that typically involve fiat currencies. The 2023 Judgment: A Cautious Approach In the 2023 case (Judgment No. 6947 of 2023), the court was faced with an employment dispute where part of the employee’s remuneration was supposed to be paid in EcoWatt tokens. The court acknowledged the inclusion of these tokens in the employment contract but ultimately refused to award the amount in EcoWatt tokens. The refusal was based on the employee’s failure to provide a clear method of calculating the value of the cryptocurrency in terms of its equivalent in fiat currency. The court’s reasoning reflected a more traditional view, requiring precise and tangible evidence of financial obligations, especially when dealing with unconventional forms of payment like digital currencies. The court’s ruling in 2023 emphasized: “It is established according to the Court of Cassation that determining the employment relationship, its start, duration, and the resulting effects falls under the authority of the trial court (Appeal No. 85 of 2005 Labour). Accordingly, it is evident to the court from the case documents and evidence that the employment relationship between the claimant and the respondent is governed by the fixed-term employment contract previously mentioned. Regarding the determination of the start date of the claimant’s employment and the monthly salary, the court relies on what the claimant stated, with the start date being [redacted], and the gross and basic salary being [redacted] AED, with the end of service date being [redacted] (according to the termination letter). As the claimant did not provide evidence of the value of the digital currency (EcoWatt tokens), the court disregards it, since the respondent did not provide opposing evidence or any defense, and therefore, the court concludes that the duration of the claimant’s service was [redacted] and that the gross and basic salary was [redacted] AED, and the court rules in the case accordingly.” This statement from the 2023 judgment reflected a cautious and traditional approach, where the court required concrete evidence of the digital currency’s value before it could enforce such a claim. The 2024 Judgment: Embracing Cryptocurrency In a remarkable turn, the Dubai Court demonstrated a more progressive stance in the 2024 judgment, where it again addressed an employment dispute involving remuneration in EcoWatt tokens. This time, the court ruled in favor of the employee, not only recognizing the validity of payment in cryptocurrency but also ordering the payment to be made in EcoWatt tokens rather than converting it into fiat currency. The court’s decision in 2024 was based on the principle that wages are a right of the employee for the work agreed upon. The court noted: “Regarding the request for the monthly salary for [redacted] days of [redacted], it is established according to Article 912 of the Civil Transactions Law that wages are a right of the worker against the employer in return for the agreed work, and the provisions of Article 22 of Federal Decree-Law No. (33) of 2021 on the Regulation of Labour Relations and Article 16 of the Cabinet Resolution No. 1 of 2022 concerning the Executive Regulations of this Decree-Law provide that the employer is obligated to determine the amount and type of wage in the employment contract, and if not, the court shall determine it. The employer must pay the wages to the workers on the due dates, either through the Wage Protection System (WPS) or any other approved systems, and it is the employer who is tasked with proving the payment of wages to the workers and providing evidence of that. As the respondent did not provide evidence of payment of the claimant’s salary for the claimed period, and since the documents were void of such evidence, the court orders the respondent to pay the claimant [redacted] AED in addition to [redacted] EcoWatt tokens. Regarding the claimant’s request for [redacted] AED for the delayed salaries over [redacted] months in EcoWatt tokens according to the contract, as the respondent did not provide evidence of payment of the due amount to the claimant for the claimed months in EcoWatt tokens, the court orders the respondent to pay the claimant the value of her wages in EcoWatt tokens amounting to [redacted] EcoWatt tokens.” This ruling marks a significant shift in the court’s approach, demonstrating a greater acceptance of cryptocurrency as a valid and enforceable means of remuneration. It underscores the importance of upholding contractual agreements as long as they are clear, agreed upon by both parties, and not in conflict with public policy or law. Legal Foundations and Implications The court’s reliance on Article 912 of the UAE Civil Transactions Law and the Federal Decree-Law No. (33) of 2021 in both the 2023 and 2024 judgments highlights the consistent application of legal principles regarding the determination and payment of wages. However, the interpretation of these provisions evolved between the two judgments, reflecting the broader acceptance and integration of digital currencies in the UAE’s legal and economic framework. Conclusion The Dubai

  In a recent judgment by the Abu Dhabi Cassation Court, the UAE judiciary has delivered a crucial ruling that has significant implications for taxpayers across the country, particularly concerning the longstanding controversies surrounding Value Added Tax (VAT) refunds. This decision, encapsulated in Judgment No. 648/2024 issued on August 8, 2024, addresses the recurring issue where the UAE Federal Tax Authority (FTA) has historically rejected VAT refund requests due to non-compliant supplier invoices. This ruling now opens the door for taxpayers to seek remedies from their suppliers, potentially reclaiming amounts that could run into millions of USD. Background and Legal Context The case at hand involved a dispute where a construction company issued a check to a supplier as a guarantee for VAT related to a construction project. The dispute arose when the Federal Tax Authority (FTA) rejected the taxpayer’s request for a VAT refund, citing the failure to provide the required documentation, specifically the VAT invoices issued by the supplier. Historically, the FTA has been stringent in its requirements for VAT refunds, particularly where input tax is concerned. Under Article 55 of the UAE VAT Law (Federal Decree-Law No. 8 of 2017), businesses are entitled to recover input tax (VAT paid on goods and services) provided they hold a valid tax invoice. However, non-compliance with the invoicing requirements as stipulated in Article 59 of the Executive Regulations has often led to the FTA rejecting refund requests, leaving taxpayers with significant unrecovered VAT amounts. In this case, the taxpayer had submitted a refund request to the FTA but was unable to provide compliant invoices within the prescribed time frame. As a result, the FTA denied the refund, which led the taxpayer to initiate legal proceedings to recover the amount from the supplier. The Court’s Disposition The Abu Dhabi Cassation Court’s ruling is pivotal in that it clarifies the legal recourse available to taxpayers when faced with such VAT refund rejections. The court upheld the principle that if a supplier issues a non-compliant tax invoice, and as a result, the taxpayer’s refund claim is rejected by the FTA, the taxpayer is entitled to reclaim the corresponding amount from the supplier. This decision reinforces the taxpayer’s right to not be left bearing the financial burden due to the supplier’s failure to comply with tax invoicing regulations. Key Aspects of the Judgment The court’s reasoning centered around the obligations of the supplier under the UAE VAT Law. The judgment emphasized that the issuance of a compliant tax invoice is a statutory requirement, and failure to comply can result in significant financial implications for the purchaser (taxpayer). The court noted that in this particular case, the supplier had failed to provide the necessary VAT invoices within the stipulated timeframe, directly leading to the FTA’s rejection of the refund request. Consequently, the court held that the taxpayer was entitled to recover the amount from the supplier. Moreover, the court underscored that the principle of equity demands that the financial burden resulting from non-compliance should not rest on the taxpayer. Instead, the supplier, who failed to fulfill their statutory obligations, should bear the consequences. This ruling marks a significant shift in how tax disputes, particularly those involving VAT refunds, are likely to be handled in the UAE going forward. It sets a clear precedent that suppliers can be held financially accountable for the consequences of their non-compliance, potentially deterring future lapses in fulfilling VAT-related obligations. Implications for Taxpayers and Suppliers For taxpayers, this judgment provides a much-needed remedy in situations where VAT refunds are denied due to non-compliant invoicing by suppliers. The ruling empowers taxpayers to seek redress directly from their suppliers, ensuring that they are not financially penalized for issues beyond their control. For suppliers, this decision serves as a stark reminder of the importance of complying with VAT invoicing requirements. The ruling effectively places the onus on suppliers to ensure that their invoices meet the standards set by the FTA. Failure to do so could result in substantial financial liabilities, as they may be required to compensate their clients for any lost VAT refunds. Conclusion The Abu Dhabi Cassation Court’s judgment in Case No. 648/2024 is a landmark ruling in tax law within the UAE. It reinforces the critical importance of compliance with VAT regulations and provides a clear legal avenue for taxpayers to recover amounts denied by the FTA due to non-compliant supplier invoices. Taxpayers and suppliers alike would do well to take heed of this judgment and its far-reaching implications.

  Introduction As the UAE courts increasingly face cases involving cryptocurrency transactions, it becomes essential to understand the legal complexities and the critical need for robust evidence. The Dubai Primary Court’s recent judgment in case number 1024 of 2024, issued on 21 May 2024, underscores this necessity. This article examines the importance of presenting acceptable evidence in cryptocurrency claims and highlights the personal guilt of directors and officers in cryptocurrency investment scenarios. Case Facts The claimant filed a lawsuit against the defendant, seeking compensation for a failed cryptocurrency investment. The claim demanded the defendant to pay USD 90,000,000 or its equivalent in AED 330,300,000, plus legal interest of 12% from the due date of 23 January 2023, until full payment, along with court fees and attorney fees. According to the lawsuit, the defendant persuaded the claimant to invest in bitcoin, promising extravagant returns if the bitcoin was transferred to the defendant’s wallet on the Binance platform. The claimant complied, making multiple transfers, and initially received weekly reports from the defendant. However, the defendant ceased providing these reports and refused to return the claimant’s cryptocurrency. A criminal case, numbered 12309/2023, resulted in a six-month prison sentence and a USD 10,000,000 fine for the defendant, along with deportation. This judgment was final, as confirmed by the Public Prosecution on 07 May 2024. The Importance of Evidence in Cryptocurrency Claims In cryptocurrency claims, presenting robust and acceptable evidence is crucial due to the opaque nature of cryptocurrency transactions. The court emphasized that the claimant must prove their claims with clear and convincing evidence, particularly given the digital and often non-transparent nature of cryptocurrencies. The claimant’s failure to provide sufficient evidence for the claimed profits and lost potential earnings led to the dismissal of those claims. The claimant sought several forms of compensation: USD 10,000,000 as determined by the criminal judgment. USD 25,000,000 for profits allegedly earned by the defendant from 359 bitcoins. USD 35,000,000 for lost potential profits. USD 20,000,000 for material and moral damages. Additionally, on 22 April 2024, the claimant’s legal representative submitted an amended list of demands, highlighting that the value of bitcoin had increased since the initial transfers. The amended claims included: USD 53,661,779 for the principal amount and profits. USD 108,661,779 for the return of 809 bitcoins or their equivalent in USD, including lost profits and compensation for material and moral damages, with legal interest of 12% from 23 January 2023 until full payment. The court ruled in favor of the claimant for only USD 10,000,000 as previously determined in the criminal case and dismissed the additional claims due to insufficient evidence. The judgment states: “The claimant is required to prove their claims, and the court is not obligated to guide the parties on the necessities of their defense. The only evidence presented by the claimant for the profits and lost earnings was a screenshot from Google showing the bitcoin exchange rate, which the court deemed unreliable. The claimant did not submit expert or financial reports to substantiate their claims.” “The claimant failed to provide sufficient evidence for the claimed profits and lost potential earnings.” Consequently, the court dismissed the additional claims due to insufficient evidence. Personal Culpability of Directors and Officers The court’s decision also highlights the potential personal culpability of directors and officers in cryptocurrency investment scenarios. The defendant’s personal control over the claimant’s cryptocurrency investments led to their criminal conviction and civil liability. The court found that the Binance wallet used for the transactions was in the name of the director/officer, which directly implicated him in the misconduct. This case serves as a cautionary tale for cryptocurrency investment providers, illustrating how personal control of cryptocurrency by directors and officers can lead to significant legal consequences, including criminal convictions and substantial fines. The judgment specifies: “The criminal judgment, which convicted the defendant, established the foundational facts of the case, specifically that the claimant was the victim, and the defendant was the perpetrator. This binding judgment made it clear that the defendant’s actions were wrongful, thereby fulfilling the requirements for tortious liability: fault, damage, and causal relationship.” “The court held that the criminal judgment, which convicted the defendant, established the foundational facts of the case, specifically that the claimant was the victim, and the defendant was the perpetrator.” Takeaways The Dubai Primary Court’s judgment in case 1024 of 2024 underscores the critical importance of presenting robust evidence in cryptocurrency claims. Given the opaque nature of cryptocurrency transactions, claimants must ensure their evidence meets the stringent standards of proof required by the courts to secure a favorable judgment. Additionally, the case highlights the potential personal culpability of directors and officers in cryptocurrency investment scenarios, serving as a precedent for future cryptocurrency litigation in the UAE.

  The enforcement of tax payment orders issued by the Federal Tax Authority (FTA) in the UAE can often lead to court enforcement applications by the FTA to seize assets of delinquent taxpayers. The federal primary court in Abu Dhabi executes FTA applications to enforce tax debts. When a taxpayer challenges and stops tax enforcement the orders issued by the court are not necessarily judgments (with reasoning) but are merely court instructions to stay the execution. This article delves into a recent judgment that effectively halted and canceled the execution of an FTA tax payment order with detail underscoring the grounds and principles that guided the court’s reasoning. The judgment guides taxpayers facing tax enforcement or having tax debts or tax audits that may lead to enforcement. Context and Judicial Authority In tax enforcement cases, the execution judge is tasked with resolving disputes related to the validity and enforcement of the executive document (i.e., the instrument used for enforcement). As such, the judge can issue rulings and decisions on all temporary disputes related to enforcement, provided they are urgent. The executive document in tax enforcement is generally a decision issued by the Director-General of the FTA. Article 40/1/b of the Tax Procedures Law simplifies tax enforcement by deeming the Director-General’s decision on Tax Assessment and Administrative Penalties Assessment as an executory instrument. This means that formal judgments are not necessary for the enforcement of tax debts; the Director-General’s decision alone suffices. This provision allows the FTA to act swiftly to enforce the collection of taxes and/or tax penalties without requiring prior court judgments against the taxpayer that recognize the debt. Within approximately 2-4 weeks of the FTA applying to the federal primary court for execution, the FTA typically makes applications to seize the taxpayer’s assets, including vehicles, bank accounts, stocks and bonds, commercial and industrial licenses, and real estate. Furthermore, the FTA may request the federal courts to liaise with local courts, such as those in Dubai or Abu Dhabi, to support execution efforts with their local authorities (such as the Dubai Land Department). Case Background The taxpayer in this case objected to the enforcement based on the assertion that the executive document’s procedures were invalid since the Federal Tax Authority (FTA) could not evidence that the tax was due before it was registered for enforcement. Legislative Framework Tax laws are inherently public order statutes. The Tax Procedures Law, particularly Article 40, outlines the steps the FTA must take if a taxpayer fails to pay the due tax or penalties within the specified deadlines: The FTA must notify the taxpayer to pay the due tax and fines within 20 weekdays from the notification date. If the taxpayer fails to comply, the Director-General issues a decision obliging the taxpayer to pay the due tax and fines, notifying them within 5 weekdays from the decision’s date. The Director-General’s decision regarding tax assessment and penalties becomes an executive document for enforcement by the execution judge at the federal primary court in Abu Dhabi. Judicial Reasoning The court highlighted that the execution judge’s jurisdiction hinges on whether the executive document is valid and enforceable. The taxpayer’s objection was based on the argument that the FTA could not provide evidence that the tax amount was due. The court found that the FTA failed to substantiate the claim. The court’s analysis revealed that the tax enforcement registration was erroneous. There was no solid evidence presented by the FTA to demonstrate that the tax was due, which was a crucial requirement for the enforcement process. This gap in evidence indicated a defect in the enforcement procedure. The court reasoned as follows in staying the enforcement procedure: “It is also established that an objection to enforcement is a supplementary lawsuit that does not aim to change the content of the judgment and is not a means to appeal it. Rather, it is a complaint against its execution procedure and, therefore, cannot be based on claims of the judgment’s invalidity, nullity, or violation of the law except in cases where the judgment is inherently flawed, affecting its existence and essence. … The implication of this provision is that the legislator made the issuance of the Director-General’s decision by the authority contingent upon the failure to pay after notification. Based on the above review by the court and given that the objector disputes the same executive document subject to enforcement for the payment of the claimed amount, which is evident in the documents and uncontested by the opposing party, the request to cancel the enforcement procedures is justified. The documents show that the enforcement registration was made in error.” Conclusion The court concluded that the taxpayer’s request to cancel the enforcement procedures was justified. The evidence of the taxpayer substantiated that the enforcement application by the FTA was erroneously conducted due to the lack of evidence of the tax debt, thus halting and subsequently canceling the enforcement process. Evolving Judicial Approach A notable trend is the judiciary’s evolving approach to tax enforcement disputes. The federal primary court has shown greater diligence in reviewing challenges to tax enforcement cases, granting more relief in the enforcement of tax debts. Grounds for halting enforcement have included issues related to the finality of the demanded amount, defects in the executive document, and procedural errors in the application of the writ of execution. The number of tax enforcement cases has significantly increased, rising from about 80 in 2023 to 80 in just the first two months of 2024. This surge indicates an intensified focus by the FTA on ensuring tax compliance. Consequently, there is a growing need for taxpayers to have a deeper understanding of the enforcement process and the available solutions. Wasel & Wasel have been counsel on over 300 tax dispute procedures for collectively about USD 1 billion in tax disputes and have obtained precedent setting federal supreme court judgments and are actively engaged by taxpayers in challenging tax enforcement.

  The recent ruling in Case Number 11 of 2024 by the Dubai Court of Appeal, issued on 29 April 2024, sets a pivotal precedent regarding the requirement for the signature of a dissenting arbitrator. This judgment reinforces the principles outlined in the arbitration law, emphasizing the integrity and robustness of arbitration procedures even when not all arbitrators are in unanimous agreement. Background and Significance The crux of the appeal centered on the claim that the arbitration award was invalid because it was signed by only two of the three arbitrators, with the third arbitrator’s dissenting opinion neither included nor explained in the final document. The appellant argued that the absence of the dissenting opinion and the refusal to include it invalidated the arbitration award. However, the Court’s ruling provides crucial insights and clarifications about the arbitration process and the legal framework that supports it. The judgment leverages Article 54(6) of the new arbitration law, which allows for the correction of procedural errors based on the parties’ request, thereby reducing the grounds for nullifying an arbitration award. Key Legal Findings In its detailed judgment, the Court reiterated the principles enshrined in the arbitration law: Majority Rule in Arbitration: The judgment emphasized that as long as the arbitration award is issued by the majority of the arbitrators, it remains valid. The law specifically states: “The arbitration award is issued by a majority of the opinions if the arbitration panel is composed of more than one arbitrator. If the arbitrators’ opinions diverge such that a majority is not achieved, the president of the arbitration panel issues the award unless the parties agree otherwise.” Signature Requirement: The judgment clarified the requirements for the arbitrators’ signatures: “The arbitrators sign the award, and if any arbitrator refuses to sign, the reason for not signing must be mentioned. The award is valid if signed by the majority of the arbitrators.” Case Analysis In the specific case at hand, the arbitration panel consisted of three arbitrators. The award was signed by two arbitrators, Arbitrator A and Arbitrator B, while the third arbitrator, Arbitrator C, refused to sign due to his dissenting opinion. The appellant’s argument hinged on the claim that this dissent invalidated the award. However, the Court dismissed this claim, noting: “The failure to record the dissenting opinion of one arbitrator does not undermine the validity of the award signed by the majority. The arbitration award is valid as long as it adheres to the legal requirements and is signed by the majority of the arbitrators.” Furthermore, the Court underscored that the procedural framework established by the new arbitration law aims to prioritize the validity of procedural actions over potential grounds for nullification, as long as the fundamental objectives of the procedure are met. Practical Implications This ruling has significant implications for arbitration practices. It underscores that: The validity of arbitration awards hinges on the adherence to procedural rules and the majority rule principle. Dissenting opinions, while important, do not invalidate an award if not included, provided the majority of arbitrators have signed the award. The arbitration law is designed to ensure procedural robustness and minimize the potential for nullification based on technicalities. The judgment provides a clear message that arbitration awards should be respected and upheld if they comply with the procedural requirements, even in the presence of dissenting opinions. This promotes the efficiency and reliability of arbitration as a dispute resolution mechanism. Conclusion The Dubai Court of Appeal’s judgment in Case Number 11 of 2024 is a landmark decision that reinforces the principles of arbitration law, particularly concerning the requirement for the signature of dissenting arbitrators. By prioritizing procedural correctness and the majority rule, this ruling enhances the robustness of arbitration awards and minimizes unnecessary annulments based on technicalities. This precedent not only clarifies legal ambiguities but also strengthens the arbitration framework, ensuring that it remains a trusted and efficient method for resolving disputes. The judgment is a testament to the evolving nature of arbitration law and its alignment with international best practice.

  In recent years, the intricacies of liability among members of tax groups have become increasingly relevant in commercial dealings. Several judgments from the Dubai Courts provide profound insights into this subject, highlighting the nuanced interpretations and applications of the law. This article delves into three pivotal cases, underscoring the complexities of liability within tax groups and their implications for commercial transactions. Dubai Primary Court Judgment No. 95 of 2021: Individual Liability Within a Tax Group This case revolves around a contractual dispute involving Company A (Free Zone) and another company within the same tax group. The court noted, “It is legally established that a contractor agreement is a contract whereby one party undertakes to perform a task or make something in return for compensation agreed upon by the other party” (Article 872 of the Civil Transactions Law). The judgment highlighted that the client is obligated to pay the compensation upon delivery of the agreed-upon work unless otherwise stipulated by agreement or custom (Article 885). In this case, the court emphasized the burden of proof, stating, “The claimant must prove their right, and the defendant must refute it” (Article 1 of the Evidence Law). The judgment further clarified that commercial account statements maintained by a trader in their commercial books hold evidentiary weight, placing the burden of disproving the entries on the defendant. This is particularly significant in the context of tax groups, where intercompany transactions and their documentation can be contentious. Despite their tax group affiliation, the court found that the second defendant was individually liable for the amount owed based on the specific contractual obligations and performance of services by the plaintiff. The court upheld the claim against the defendant, asserting, “The second defendant, a sister company within the same tax group, failed to fulfill its contractual obligations, resulting in a liability of AED 99,855.” Dubai Primary Court Judgment No. 2702 of 2020: Separate Legal Personalities in Tax Groups This case delves deeper into the concept of tax group liability. It involved Company B, part of the same tax group as Company C. The dispute centered on purchase orders issued by Company C, directing invoices to be made out to Company B. However, the court found no evidence that Company B had received or acknowledged the goods or issued any orders to the claimant. The judgment stated, “The relationship of the defendant to the contract in question is limited to the fact that the purchase orders directed the invoices to be issued in its name.” The court concluded that being part of the same tax group does not automatically transfer liability between companies. Each company retains its separate legal personality. Since Company B had an independent legal personality from the company issuing the purchase orders, it could not be held liable for the claim, underscoring the distinct legal identities within a tax group. Dubai Primary Court  Judgment No. 7794 of 2019: Unified Obligations Due to Intercompany Dependency This case addressed the broader implications of VAT laws on tax groups and examined the relationship between the companies within a tax group. The court explained, “Value Added Tax (VAT) is imposed on the import and supply of goods and services at each stage of production and distribution.” It further clarified that a tax group comprises two or more entities registered as a single taxable entity with the Federal Tax Authority, sharing economic, financial, and organizational ties. The court took a different position in this case because it looked into the intercompany dependency between the tax group members. The judgment elaborated on the intercompany relationships, noting, “The tax group is treated as a single taxable person for VAT purposes, and all members are jointly and severally liable for the group’s VAT obligations.” In this case, the court found that the companies within the tax group were not financially or organizationally separate, stating, “The tax group members are united in their obligations, and the group’s restructuring decisions and financial statements reflected their collective responsibility.” Consequently, the court held the tax group members jointly liable for the VAT liabilities. These judgments collectively underscore the critical importance of understanding the legal and financial relationships within tax groups in commercial dealings. They highlight that while tax group members may operate as separate legal entities, their collective obligations and responsibilities, especially concerning VAT, can blur these distinctions. This has significant implications for businesses operating within such structures, emphasizing the need for meticulous documentation and clear contractual terms to navigate the complexities of liability. Moreover, these cases illustrate the courts’ approach to interpreting contractual obligations and the evidentiary requirements in commercial disputes involving tax groups. The emphasis on the burden of proof, the evidentiary weight of commercial records, and the distinct legal personalities within tax groups provides a comprehensive framework for understanding liability in these contexts. In conclusion, the liability of tax group members in commercial dealings is a multifaceted issue that requires careful legal and financial consideration. The insights from the Dubai Court judgments provide valuable guidance for businesses and tax practitioners navigating these complexities. Understanding the interplay between contractual obligations, tax laws, and the collective responsibilities of tax group members is crucial for mitigating risks and ensuring compliance in commercial transactions.

  The ruling No. 229 of 2024 by the Court of Cassation in Abu Dhabi on 04 April 2024 sets a new precedent regarding the necessity for taxpayers to provide tax invoices to claim tax debts from debtors. This judgment underscores the importance of adhering to formal documentation requirements in tax matters, ensuring that taxpayers have the appropriate records to support their claims. In this case, the court emphasized that understanding the facts of the case and evaluating the evidence, including expert reports, is within the jurisdiction of the trial court. The trial court has the authority to accept or reject expert reports wholly or partially, provided that its decision is based on reasonable grounds. The case involved a contract dispute where the contractor completed 86.50% of the contracted work. The appointed expert reviewed the work, identified deficiencies in workmanship, and deducted their value from the contractor’s dues. Additionally, the expert calculated the value of the extra work performed and settled the contractor’s entitlements based on the actual work completed. The court ruled that the contractor was entitled to AED 665,697 for the work executed, a sum supported by the expert report. One critical aspect of the ruling was the dismissal of the contractor’s claim for VAT reimbursement. The contractor presented an accounting document from the Federal Tax Authority’s system to support the VAT claim. However, the court found that this document was not a tax invoice, and there was no evidence of any tax invoice being submitted to the respondents for the amount claimed. According to the contract terms, the contractor needed to provide a valid tax invoice to be eligible for VAT reimbursement. The lack of proper tax invoices not only affects the ability to claim tax debts but also exposes taxpayers to potential penalties imposed by the Federal Tax Authority. The FTA has strict guidelines and regulations for VAT documentation, and failure to comply can result in significant fines and penalties. This ruling by the Abu Dhabi Court of Cassation prevents creditors from claiming taxes from debtors if they lack the appropriate tax invoices, expanding the plight of not issuing accurate tax invoices. This ruling reinforces the legal requirement for tax invoices to claim tax debts and ensures that such claims are substantiated by appropriate documentation. The court’s decision aligns with the principles of fairness and legal integrity, ensuring that claims are based on solid evidence rather than assumptions or incomplete documentation. Moreover, this judgment highlights the significance of maintaining accurate and comprehensive records in commercial transactions. For businesses, this serves as a reminder of the critical role of documentation in supporting their financial claims and legal rights. Ensuring that all transactions are properly documented with tax invoices not only complies with legal requirements but also protects businesses in potential disputes. In conclusion, the ruling No. 229 of 2024 by the Abu Dhabi Court of Cassation sets a clear precedent that taxpayers must provide tax invoices to claim tax debts from debtors. This decision underscores the importance of adhering to formal documentation requirements and maintaining accurate records to support financial claims. For businesses and tax professionals, this serves as a crucial reminder of the need to ensure that all financial transactions are properly documented and supported by appropriate evidence. The ruling also highlights the potential consequences of failing to issue accurate tax invoices, which can include penalties from the Federal Tax Authority and the inability to claim taxes from debtors. This ruling will likely influence future cases, reinforcing the necessity for strict compliance with tax documentation regulations.

  First published on LexisNexis on 04 June 2024 at: https://www.lexisnexis.co.uk/legal/news/difc-court-of-appeal-affirms-enforceability-of-foreign-interim-arbitral-awards-neal-v-nadir Mini-summary In the case of Neal v Nadir [2024] DIFC A 001, the Dubai International Financial Centre (DIFC) Court of Appeal upheld the enforceability of foreign interim arbitral awards, reinforcing the DIFC’s commitment to arbitration and international legal standards. The court held that interim awards, which are not final, can still be recognized and enforced within the DIFC jurisdiction. This decision is significant for practitioners in international arbitration and commercial law, as it underscores the DIFC Courts’ supportive stance on arbitration and offers clarity on the enforceability of interim measures. What are the practical implications of this case? The practical implications of Neal v Nadir are far-reaching for practitioners in international arbitration and commercial law. By affirming the enforceability of foreign interim arbitral awards, the DIFC Court of Appeal enhances legal certainty and predictability for parties engaged in cross-border arbitration. This decision reassures international businesses that interim measures granted in arbitration proceedings abroad will be respected and enforced in the DIFC, thus bolstering the attractiveness of the DIFC as a hub for international dispute resolution. For arbitration practitioners, this ruling underscores the importance of obtaining interim measures in jurisdictions that are supportive of arbitration. The court stated, “Recognition or enforcement of an arbitral award, irrespective of the State or jurisdiction in which it was made, may be refused by the DIFC Court only on the grounds specified in that Article,” reinforcing the robustness of the enforcement regime. Furthermore, the court noted, “few would regard it as desirable that awards of this kind should not be enforceable,” highlighting the modern view on interim relief. Commercial lawyers will also find this decision relevant when advising clients on the risks and benefits of interim relief in arbitration. The ruling provides a clearer understanding of the enforceability of interim awards, which can be crucial in maintaining the status quo or preventing harm during the pendency of arbitration proceedings. Overall, the decision enhances the credibility and effectiveness of the DIFC as a venue for enforcing arbitral awards, both interim and final, making it a pivotal case for practitioners involved in international arbitration and commercial disputes. What was the background? The dispute in Neal v Nadir originated from a contractual agreement between the parties, which included an arbitration clause stipulating that any disputes would be resolved through arbitration. During the arbitration proceedings, an interim award was issued by the arbitral tribunal in favor of Neal, granting certain provisional measures to preserve assets and maintain the status quo until the final award was rendered. Nadir challenged the enforceability of this interim award in the DIFC Courts, arguing that interim awards should not be enforceable as they are not final and binding decisions. Neal, on the other hand, contended that the interim award was essential for protecting his interests during the arbitration and sought the DIFC Courts’ assistance in enforcing it. The primary issue before the DIFC Court of Appeal was whether a foreign interim arbitral award could be recognized and enforced in the DIFC jurisdiction. The court had to consider the relevant legal principles and international conventions applicable to the enforcement of arbitral awards, particularly focusing on the New York Convention and the DIFC Arbitration Law. What did the court decide? The DIFC Court of Appeal ruled in favor of Neal, affirming the enforceability of foreign interim arbitral awards within the DIFC jurisdiction. The court held that the interim award, despite not being a final adjudication of the dispute, met the criteria for recognition and enforcement under the DIFC Arbitration Law and the New York Convention. The court emphasized, “An interim measure is any temporary measure, whether in the form of an award or in another form, made by the Arbitral Tribunal at any time prior to the issuance of the award by which the dispute is to be finally decided.” The court emphasized that the purpose of interim measures in arbitration is to provide immediate relief and prevent irreparable harm, aligning with international arbitration principles. By recognizing and enforcing such awards, the DIFC Courts uphold the integrity and efficacy of the arbitral process. “The purpose of interim measures in arbitration is to provide immediate relief and prevent irreparable harm,” the court stated, highlighting the critical role of interim measures in arbitration proceedings. The decision was grounded in the interpretation of the DIFC Arbitration Law, which allows for the recognition and enforcement of interim measures issued by an arbitral tribunal. The court also referenced international jurisprudence and academic commentary supporting the enforceability of interim awards to bolster its decision. This ruling sets a precedent for the DIFC Courts and reinforces the jurisdiction’s reputation as an arbitration-friendly forum. It clarifies that interim awards, which play a critical role in arbitration proceedings, can be effectively enforced in the DIFC, providing greater assurance to parties seeking interim relief in international arbitration. Case details Court: Court of Appeal, Dubai International Financial Centre Courts Judge: Chief Justice Tun Zaki Azmi, Justice Sir Jeremy Cooke, and Justice Andrew Moran Date of judgment: 19/3/2024

Brief In Dubai Appeals Court appeal no. 27/2024, the appeals court upheld a decision awarding punitive damages in a case of cryptocurrency embezzlement. The case highlights the judiciary’s stance on financial crimes in the digital currency space, detailing the interaction between criminal and civil liabilities. Facts The plaintiff initiated a lawsuit claiming the defendant embezzled AED 200,000 intended for cryptocurrency transactions. The defendant had previously faced criminal proceedings for the same act, resulting in a fine. Despite this, the plaintiff sought compensation for the financial loss incurred. Procedures of Different Courts Criminal Court Proceedings: The defendant was tried in a criminal court for embezzling AED 200,000 from the plaintiff. The court found the defendant guilty, imposing a fine of AED 20,000 and ordering the defendant to pay the embezzled amount of AED 200,000 as restitution. Civil Court Proceedings: Subsequently, the plaintiff pursued civil litigation to recover the financial loss. The Court of First Instance ruled in favor of the plaintiff, ordering the defendant to pay AED 200,000 with a 5% annual interest from the date of demand until full payment. Additionally, the defendant was ordered to cover legal expenses and attorney fees. Appeal Court Proceedings: The defendant appealed the civil court’s decision, challenging it on several grounds, including double jeopardy, lack of jurisdiction, and insufficient evidence. The Dubai Appeals Court heard the appeal, examining the arguments presented by both parties. Arguments, Defenses, and Court Ruling Defendant’s Arguments: The defendant argued that the criminal court’s judgment, which included a directive to pay the embezzled amount, precluded further civil liability on the same grounds, invoking the principle of ne bis in idem (not being judged twice for the same act). The defendant also contested the civil court’s jurisdiction and argued that the plaintiff’s evidence was insufficient to warrant the claimed damages. Plaintiff’s Defense: The plaintiff maintained that the criminal penalty did not negate the right to civil compensation for the loss suffered. The plaintiff also highlighted the jurisdiction of civil courts to adjudicate financial disputes and presented the criminal court’s judgment as evidence of the defendant’s liability. Court Ruling: The Dubai Appeals Court rejected the defendant’s arguments and upheld the Civil Court of First Instance’s judgment. It clarified that the criminal court’s ruling imposed a penalty for the criminal act, while the civil court’s judgment aimed at compensating the plaintiff for the financial loss. The court found the civil lawsuit valid, emphasizing that the punitive damages awarded were distinct from the criminal fines and served to compensate the plaintiff adequately. Significance on Cryptocurrency Scams This ruling underscores the Dubai judiciary’s serious approach to financial crimes, particularly in the emerging field of cryptocurrencies. By distinguishing between criminal penalties and civil compensations, the court affirms that victims of cryptocurrency scams have a clear path to recovery beyond criminal proceedings. This case sets a precedent for handling similar disputes in the future, indicating that the legal system is equipped to address the complexities associated with digital currency fraud. It sends a strong message about the consequences of engaging in cryptocurrency embezzlement, reinforcing the importance of integrity in digital financial transactions.

The UAE is booming at a time when many developed economies are having a very troubled patch. Residential property sales saw a 29% sales increase in ’23 with prices on average up 20%. Office demand exceeds supply – and the Dubai International Financial Centre saw a year-on-year rental rate increase of 22% last year – at a time when WeWork has gone bankrupt. In February ’24 UAE non-oil trade hit an all time high of $952 billion, with non-oil GDP growth of 7.7% in Q3 2023 alone. The non-oil sector now represents over 70% of GDP where in 2009 oil represented 77% of the UAE state budget. In conflictual times, the UAE has largely succeeded in being Geopolitically agnostic and remained the (golden) melting pot for all Nationalities and Religions, a principle it has always maintained, and which seems to be really “coming good” for it. There are now over 50 free zones offering tax breaks and a wide range of low-cost company and visa solutions. An overall corporation (but not personal) tax rate of 9% (with zero generous banding) with a VAT rate of 5% seems to be settling in smoothly, whilst at the same time hopefully satisfying the OECD that the UAE is not an “offshore jurisdiction”. The DIFC offers a largely English Law jurisdiction for businesses, and the newer Abu Dhabi Global Market has a direct English Law regime, following ongoing English precedent and offering English Judges, Barristers and Solicitors. So how does the UAE’s recent joining of the BRICS grouping stand in the Geopolitical mix? Despite the de-dollarization “threat”, US exports to the UAE reached $24.8 billion in ’23, a 19% increase from ’22, and making the UAE the US’ 4th largest trade surplus globally. The trade is mainly transport & logistics, computers & electronics. and manufacturing – supporting 145,000 US jobs. The ’22 UAE direct investment into the US stood at $ 38.1 billion. Increasingly the leading operators in US fintech, crypto, embedded finance, blockchain and AI are relocating to greater regulatory transparency in the UAE. Perhaps the financial relationship has become too important for 2 pragmatic trading Nations to easily throw to the wind. But de-dollarization, one of the US’s greatest fears, is moving forwards. Since the start of ’22 there has been an increased trade in Chinese Yuan and Indian Rupees by BRICS Nations. In March ’23 the China National Offshore Oil Corporation & Total Energies purchased 65,000 tonnes of UAE LNG in Yuan on the Shanghai Exchange. In August ’23 Indian Oil Corporation purchased 1m barrels of oil from Abu Dhabi National Oil Corporation using Rupees and last year the UAE sold 25 kg of gold to India in Rupees. The transactions to date have largely been test transactions, but the direction of travel seems to be inevitable. Whilst relations with the US are good, the UAE seems to stay firmly in the Geopolitical middle ground, preferring to remain a friend and business partner to all. Between 100,000 to 500,000 (statistics are quite oblique) Russians have moved to the UAE since the war, and many Ukrainians too. JP Morgan and Bank of America, along with many other financial and professional services firms, moved their Moscow staff to Dubai. At least 3,000 “Emirati’ companies are owned by Russians. The Palm and Marina have very substantial Russian presences. There is substantial Russia – Iran -UAE trade in gold and oil, including re-export to Asia, Africa and Latin America. In 2000 zero Russian oil was imported into Fujairah but by 2022 140, 000 barrels a day were imported, making 40% of all fuel being imported into Fujairah. From 1.3 million tonnes of gold arriving in the UAE from Russia in 2021 the figures rose to 96.4 tonnes in ’22. There are 600,000 Iranians in the UAE. The influx of Chinese is now very marked. Aside from the longstanding expat populations from the UK, France, South Africa etc. The UAE has built its business foundations on immigration and technology transfer before the expression came into popular usage. For this reason I think we will continue to see careful diplomacy to keep it as the melting pot that it is.

  The UAE Federal Supreme Court’s ruling on the restrictions of compound interest represents a significant shift in the legal landscape governing financial transactions within the country. This judgment, detailed in case number 1254 of 2023 dated 10 January 2024, highlights the court’s firm stance on the prohibition of compound interest, drawing upon specific provisions within the Federal Decree-Law No. 23 of 2022 and the Federal Law No. 50 of 2022. Understanding the Legal Provisions Federal Decree-Law No. 23 of 2022 – Article 121/4: This article is a cornerstone in the court’s decision, explicitly prohibiting licensed financial institutions from charging any interest on frozen interests, commonly referred to as compound interest, on the facilities granted to customers. The decree mandates that such practices must adhere to the controls and rules stipulated in the control regulations issued by the Central Bank, emphasizing the protection of customers and ensuring fair financial practices. Federal Law No. 50 of 2022 – Article 88: Complementing the provisions of the Federal Decree-Law No. 23 of 2022, Article 88 of this law reinforces the prohibition of compound interest. It states, “The creditor may not claim compound interest – which is interest on compounded interests – or claim those interests as supplementary compensation.” This provision further solidifies the legal framework against the application of compound interest in financial transactions, ensuring that creditors adhere to a simple interest model. Implications of the Supreme Court’s Ruling The Supreme Court’s ruling, grounded in these explicit legal provisions, marks a pivotal move towards enhancing consumer protection in the financial sector. By prohibiting compound interest, the court aims to prevent the undue accumulation of debt on borrowers, promoting transparency and fairness in lending practices. For Financial Institutions: The ruling necessitates a significant shift in how interest is calculated and applied to loans and credit facilities. Financial institutions must now ensure their practices are aligned with the stipulated legal framework, moving away from compound interest calculations to a simple interest model as mandated by the Central Bank’s regulations. For Borrowers: This decision is a significant win for consumer rights, offering borrowers protection against the potential financial strain caused by compound interest. It ensures that loan and credit facility repayments are more manageable and predictable, reducing the risk of escalating debt burdens. The Broader Legal and Economic Context The prohibition of compound interest by the UAE Federal Supreme Court reflects a deliberate effort to strengthen the legal and regulatory framework surrounding financial transactions. It underscores a commitment to ensuring ethical lending practices, safeguarding consumer interests, and maintaining the integrity of the financial sector. In the broader economic landscape, this ruling may influence lending and credit practices, potentially leading to more conservative risk assessments by financial institutions. However, it also promotes a more sustainable and equitable financial environment, encouraging responsible lending and borrowing practices. Conclusion The UAE Federal Supreme Court’s decision to restrict compound interest, as articulated in Article 121/4 of the Federal Decree-Law No. 23 of 2022 and Article 88 of the Federal Law No. 50 of 2022, sets a new legal precedent in the financial sector. This landmark ruling not only enhances consumer protection but also aligns the UAE’s financial practices with global standards of fairness and transparency. As the implications of this ruling unfold, it is expected to have a lasting impact on the financial industry, promoting a more stable and equitable economic environment for both financial institutions and consumers alike.

  In Federal Supreme Court case number 1066 of 2022, the primary focus was on the application of the Value Added Tax (VAT) within the context of the Gulf Cooperation Council (GCC) countries, specifically between the Kingdom of Saudi Arabia and the United Arab Emirates (UAE). The appellant, a Saudi Arabian entity, was involved in importing and introducing special equipment into the UAE for repair purposes, as well as purchasing goods from a local supplier within the UAE. The key issues revolved around the applicability of VAT on these transactions and the eligibility for VAT exemption under the Unified VAT Agreement for GCC countries. The appellant contended that Saudi Arabia, being a non-implementer of VAT, should exempt them from this tax. However, it was established that Saudi Arabia does apply VAT, as evidenced by Royal Decree No. M/113 dated 2/11/1438 H and its subsequent amendments. The court reasoned as follows: “It is established that the legislator has decided that the law is the source of the obligation for the taxpayer to pay tax. Article 2 of the Federal Decree-Law No. 8 of 2017 concerning the Value Added Tax stipulates that every supply of a good in exchange for monetary compensation is subject to tax. The appellant acknowledged in their lawsuit that they imported and introduced their equipment into the United Arab Emirates from the Kingdom of Saudi Arabia for the purpose of repair, and consequently, they were charged with Value Added Tax for repair services from a local supplier in the UAE and for their purchase of certain goods. Therefore, the provision of Article 75 of the same law, which allows the authority to exempt a taxpayer from this tax if they are from a GCC country that does not implement this tax, does not apply to them. This is because, according to the Unified VAT Agreement for GCC countries and the appellant’s acknowledgment in their appeal that Saudi Arabia implements the Value Added Tax law, which is evidenced by Saudi Royal Decree No. M/113 dated 2/11/1438 H and amended by Royal Decree M/52 dated 28/4/1441 H and Royal Order No. A/638 dated 5/10/1441 H. Moreover, the non-applicability of Article 67 of the Executive Regulations of this law, issued by Cabinet Resolution No. 52 of 2017, which requires for the exemption eligibility that the supply should not have a place of supply in the state or belong to a GCC country that does not implement the Value Added Tax. Consequently, the appellant does not meet the legal conditions for exemption, making their second reason for appeal, regarding not considering Saudi Arabia as a country that does not implement the Value Added Tax law, irrelevant.” The finding of the court can be analyzed in three considerations: Article 75 – Exemption for Non-implementing GCC Countries: The first aspect of the judgment concerns Article 75, which provides for the possibility of exempting taxpayers from VAT if they are from a GCC country that does not implement this tax. In this case, the court found that the provision of Article 75 does not apply to the appellant. This conclusion was based on the fact that the appellant’s activities fell within the scope of the UAE’s VAT law. Essentially, the exemption under Article 75 is designed for entities from GCC countries that do not have a VAT regime in place. Since Saudi Arabia, the country of the appellant, does implement VAT, the exemption was deemed inapplicable. Acknowledgment of VAT Implementation by Saudi Arabia: The court’s decision also took into account the Unified VAT Agreement for GCC countries and the appellant’s acknowledgment that Saudi Arabia implements VAT. This is corroborated by Saudi Royal Decree No. M/113 and its amendments. The acknowledgment is a crucial aspect of the judgment as it signifies the appellant’s acceptance of Saudi Arabia’s VAT regime, which in turn influences the applicability of VAT exemptions and liabilities under the UAE law. Article 67 and Non-Applicability of Exemptions: The final aspect involves the interpretation of Article 67 of the Executive Regulations of the law, issued by Cabinet Resolution No. 52 of 2017. This article sets conditions for VAT exemption eligibility, including that the supply should not have a place of supply in the state or belong to a GCC country that does not implement VAT. In this context, the court ruled that the conditions for exemption were not met by the appellant. This part of the judgment underscores the specificity and strict compliance expected under the VAT law regarding the eligibility for exemptions. In the context of sophisticated intra-GCC activities, companies, investors, and tax advisors should focus on advanced strategies like contractual and corporate structuring, and segmenting rights and liabilities. This involves designing contracts and corporate structures that are not only compliant with the VAT regulations of each GCC country but also flexible enough to adapt to changes in these laws. For instance, considering the court’s findings, businesses should meticulously evaluate where and how their services and goods are supplied within the GCC to determine VAT liabilities and exemptions accurately. Segmentation of rights and liabilities in contracts can be a key strategy. For example, in transactions involving countries like Saudi Arabia, which has implemented VAT, the contracts should clearly stipulate the parties’ responsibilities regarding VAT payments. This might include clauses specifying how VAT is to be handled in cross-border transactions. Moreover, corporate structuring should be such that it aligns with the most favorable VAT regimes within the GCC, considering exemptions and the place of supply rules. Adequately managing multi-jurisdictional tax disputes is a crucial aspect for companies operating within the GCC. Given the diverse VAT regimes and the nuanced legal interpretations, as evidenced by the recent court findings, businesses need to develop robust strategies for dispute resolution. This involves creating clear, comprehensive documentation and maintaining detailed records of transactions to substantiate their VAT positions. Additionally, they should establish protocols for timely and effective communication with tax authorities across different jurisdictions. By doing so, businesses can navigate the complexities of multi-jurisdictional tax landscapes and

  In a significant judgment delivered on 18 October 2023 in petition nos. 1480 of 2022 and 1 of 2023, the UAE Federal Supreme Court addressed the complexities surrounding tax liabilities that arise from building projects initiated before the enactment of a new tax law. The court considered interpretations and implications of retroactive application of tax laws, particularly for the engineering and construction industry in contracts executed prior to 2018. At the heart of this ruling is the application of VAT (value added tax) on transactions that were executed before the implementation of the VAT law in 2018 but continued to yield tax liabilities post-enactment. The court’s decision is grounded in the principle that new legislation applies immediately to facts and circumstances arising after its effective date. The rationale is that new legislation is presumed to be an improvement over old laws and, as such, should be applied to all relevant instances that occurred prior to the new law from the point of enactment of the new law. This principle was applied to the case at hand, where the supply and installation of goods took place before 2018 but created a tax liability post-2018. Another critical aspect of the judgment is the court’s interpretation of tax obligations. According to the ruling, tax obligations arise from the law, which dictates the tax rate and the mechanism for its payment. The court emphasized that every entity subject to tax must register for tax and file tax returns for each tax period during their registration. This requirement holds even if the underlying transactions were completed before the new tax laws came into effect. In this sense the court reasoned that: “And this implies that all effects that occur under the authority of this legislation, even if they originate from facts that happened before its effective date, should be subject to its jurisdiction. This is to ensure uniformity in legal statuses. This does not constitute retroactive application of the legislation but is rather the implementation of its immediate effect.” In addressing the arguments presented by the appellants, the court rejected the notion that applying VAT retrospectively to pre-2018 transactions was unlawful. The court referred to specific provisions of the VAT law, particularly those concerning the timing of supply and the completion of the installation of goods, to support its ruling. It was determined that the taxable event, in this case, occurred after the VAT law came into effect, thus subjecting it to VAT regulations. Moreover, the court underscored the importance of contract interpretation in determining tax liabilities. It highlighted that the intent of the contracting parties, as expressed in the contract terms, is paramount in deciding whether a transaction falls within the scope of VAT. In this case, the payments made under the contract for engineering works (purchase, construction, and operation) were deemed advance payments, falling under specific provisions of the VAT law. The court reasoned as follows: “It is decided that Article 80 of the Federal Decree-Law No. 8 of 2017 concerning Value Added Tax stipulates that if the supplier receives the consideration or any part of it, or issues an invoice for goods or services before the date of the implementation of the provisions of this decree-law, the date of supply is considered to be the date of the implementation of the provisions of this decree-law in the cases stated below if it occurs after the date of the implementation of the decree-law… J – Completion of the assembly and installation of goods, and it is decided that the event that creates the Value Added Tax applies to the events that occur after its enforcement starting from 1/1/2018… … It has not been proven that the amounts subject to tax in the appellants’ accounts were recorded as a loan, and it is established from the terms of the contract that they were an advance payment under the account of works. The contract, which is the subject of the tax, concerns engineering works involving purchasing, construction, and operation, which falls under item J of Article 80 of the Value Added Tax Law.”Top of Form The court further addressed the administrative and procedural aspects of tax collection. It stated that tax procedures are a means to achieve the legislative intent of tax collection and should fulfill the state’s right to collect taxes within legally prescribed timelines. Even in cases of procedural errors, the state’s right to collect taxes remains intact. On this issue, the court reasoned that: “Council of Ministers issued Decision No. 105 of 2021, and the second article of it stipulates that the provisions of this decision apply to requests for installment payments and exemptions, and the full or partial refund of administrative fines imposed on any person for violating the provisions of the Tax Procedures Law or the Tax Law. Given this, and the fact that the appellants did not resort to this committee or to the tax disputes resolution committee for any request for exemption or reduction of the penalties before or during the lawsuit of the contested judgment or the appealed judgment, what the appellants claim about the error in applying the law due to non-application of Council of Ministers Decision No. 49 of 2021 is not valid and not acceptable.” The court indicates that the tax disputes resolution committee, traditionally limited to review of reconsideration decisions, might also possess the authority to consider requests for exemptions and reductions in administrative penalties. This revelation is significant as it potentially expands the options available to taxpayers in handling penalty disputes. Previously, such matters were primarily associated with the special committee outlined in Federal Decree-Law No. 28/2022. This new interpretation suggests a broader role for the tax disputes resolution committee beyond its conventional scope, offering taxpayers an additional avenue to seek penalty relief.

  In the recent dispute between Baker Hughes Saudi Arabia Co. Ltd. and Dynamic Industries, Inc. and its affiliates (Dynamic Industries International, LLC, and Dynamic Industries International Holdings, Inc.), the United States District Court for the Eastern District of Louisiana was presented with a significant contractual disagreement. The case, titled Baker Hughes Saudi Arabia Co. v. Dynamic Industries (Civil Action 2:23-cv-1396), was published on November 6, 2023​​. The core of the dispute stemmed from a contract under which Baker Hughes Saudi Arabia agreed to supply materials, products, and services for an oil and gas project in Saudi Arabia, being executed by Dynamic Industries. Baker Hughes Saudi Arabia claimed it had fulfilled its contractual obligations but had not been paid the owed sum of $1.355 million by Dynamic Industries​​. Dynamic Industries, in response, filed a motion to dismiss the case on the grounds of forum non conveniens (a legal principle allowing courts to dismiss a case if another more appropriate forum is available) or to compel arbitration. They based their argument on the contract’s clause, which stated that any unresolved disputes should be referred to and finally resolved by arbitration under the Arbitration Rules of the DIFC LCIA (Dubai International Financial Center London Court of International Arbitration)​​. However, the situation was complicated by the fact that the DIFC LCIA had been abolished in 2021 by a decree from the government of Dubai and replaced with the Dubai International Arbitration Center (DIAC). Baker Hughes argued that the contract’s arbitration provision was unenforceable because the agreed-upon forum, the DIFC LCIA, no longer existed​​. Dynamic Industries countered by suggesting that the Dubai government’s decree effectively transferred the assets, rights, and obligations of the DIFC LCIA to the DIAC, arguing that this allowed for the arbitration to proceed under the DIAC. However, Baker Hughes contested this, stating that the Dubai government could not unilaterally change the arbitration forum agreed upon in the contract​​. After reviewing the arguments and considering the legal precedents, the court ruled in favor of Baker Hughes Saudi Arabia. It denied Dynamic Industries’ motion to dismiss the case or compel arbitration in the DIAC, concluding that the original forum for arbitration, the DIFC LCIA, no longer existed and could not be substituted unilaterally. This decision underlines the importance of specific arbitration clauses in contracts and the challenges that may arise when the selected arbitration forum is no longer available​. The court reasoned: “As the Fifth Circuit explained, this Court “cannot rewrite the agreement of the parties and order the [arbitration] proceeding to be held” in a forum to which the parties did not contractually agree. Nat’l Iranian Oil Co., 817 F.2d at 334. Nor can the Dubai government. Whatever similarity the DIAC may have with the DIFC LCIA, it is not the same forum in which the parties agreed to arbitrate. That forum is no longer available, and this Court thus cannot compel Plaintiff to arbitrate.” The ruling in Baker Hughes Saudi Arabia Co. v. Dynamic Industries sets a significant precedent for future disputes involving DIFC-LCIA clauses, particularly in U.S. and other international jurisdictions. With the dissolution of the DIFC-LCIA and government-mandated transfer of DIFC-LCIA arbitrations to DIAC, contracts specifying the former as the arbitration forum face legal uncertainties. U.S. courts, as demonstrated in this case, may not recognize the DIAC as a valid substitute, thereby impacting the enforceability of arbitration clauses and potentially leading to more litigations being adjudicated in court rather than through arbitration. This development urges parties in international contracts to reassess and potentially revise their arbitration clauses to ensure clarity and enforceability, acknowledging the evolving landscape of international arbitration forums.

  The United Arab Emirates (UAE) has many free zones that attract businesses with tax benefits among other incentives. For example, free zones in the UAE typically offer a zero percent corporate tax rate for a certain number of years, often extendable. However, with the introduction of a new corporate tax regime in the UAE, there have been questions about how federal tax laws interact with these domestic exemptions. A recent judgment from the Federal Supreme Court issued in October 2023 provides clarity on this matter, setting a precedent for how tax laws are applied to entities operating in free zones. This article examines the judgment, explores the exemption provisions for free zone entities under the UAE corporate tax law, and discusses the implications of the judgment. Wasel & Wasel was counsel on this matter and has represented clients in over two hundred tax dispute procedures in the UAE. The Federal Supreme Court Judgment The Federal Supreme Court of the UAE recently issued a judgment in October 2023, clarifying the relationship between federal tax laws and domestic emirate-specific tax laws, particularly concerning tax exemptions. In this case, the Federal Primary Court and the Federal Appeals Court had found that domestic tax laws have no impact on federal tax legislation. The Supreme Court on the other hand took a different reasoning approach. The Supreme Court stated: “The local law does not restrict or specify the federal law issued by the federal authorities; rather, they operate within a framework of legislative integration and synergy. The petitioner is considered subject to tax, as what it practices in the activity in question … aims for profit as a whole. The [tax] exemption of the petitioner does not change the foregoing.” The petitioner had approached the Supreme Court after being subject to a number of ministerial decrees in its respective emirate that provided exemptions from any form of tax. The petitioner sought to overturn the findings of the lower federal courts. The Federal Primary Court had stated: “That the law establishing the Federal Tax Authority in its Article 4 outlined the authority’s jurisdiction over the management, collection, and enforcement of federal taxes and related fines…The local laws regarding exemption from tax and local fees were only concerned with the concerned emirate and have no impact on the application of the federal tax law.” Similarly, the Federal Appeals Court had noted: “The exemptions issued under local legislations have no impact on the application of the tax imposed under federal tax legislations.” The lower federal courts focused on whether the exemptions granted to the petitioner in its respective emirate were reflected in the federal tax legislation or not. The lower federal courts reasoned that domestic emirate-specific tax exemptions operate only to the benefit of the taxpayer within the applicable emirate but not on a federal level. However, the Supreme Court highlighted that the focus should be on whether an entity is engaged in profit-making activities, rather than where it operates, and whether the federal tax legislation has adopted the emirate-specific tax exemptions. Through this judgment, the Supreme Court confirmed that domestic tax laws do in fact apply but must be applied in “integration and synergy” with federal tax laws, marking a departure from the reasoning of the lower federal courts and providing reassurance for free zone entities. Exemption Provisions for Free Zone Entities The new corporate tax law in the UAE, introduced in 2022, outlined the tax obligations for all entities, including those in free zones. To be considered for tax exemptions, a free zone entity needs to meet several conditions. These conditions include maintaining a substantial presence in the UAE, earning qualifying income, and following specific auditing and pricing regulations. If a free zone entity meets all the required conditions, it is termed a “Qualifying Free Zone Person” (QFZP) and can enjoy tax exemptions. The law aims to ensure that entities are compliant with international tax standards while also providing a clear framework for tax obligations and exemptions. Implications of the Supreme Court Judgment The judgment of the Supreme Court is crucial as it identifies that a profit-generating entity falls within the federal tax regime despite any emirate-specific tax exemptions. This confirms that profit-making entities in free zones are subject to federal tax laws, just like other entities outside free zones. The judgment helps in understanding how federal and local tax laws interact, ensuring that businesses in free zones are also contributing to the country’s tax revenue when they engage in profit-making activities. It aligns the tax treatment of free zone entities with the broader tax framework of the UAE, promoting fairness and compliance with the new corporate tax regime. It is important to consider notwithstanding that the Supreme Court acknowledges the existence and validity of domestic tax exemptions, such as those provided in free zones, without setting them aside. Instead, the Supreme Court emphasizes a prerequisite for domestic emirate exemptions to operate in “integration and synergy” with federal tax laws. This denotes a principle of harmonization between federal and local tax frameworks, underscoring that the local exemptions are recognized as long as they are in alignment with the overarching federal tax laws. Takeaway In conclusion, this novel judgment by the Federal Supreme Court, along with the new corporate tax law, provides a clear understanding of the tax obligations for entities operating in free zones. It ensures that all entities, regardless of their location, are subject to the same tax laws if they are engaged in profit-making activities. This creates a level playing field for all businesses, contributing to a transparent and fair business environment in the UAE. The principle set by the federal courts is reassuring for free zone entities as it does not dismiss domestic tax exemptions outright. It provides a structured approach where both federal tax obligations and local tax exemptions coexist, given they are operating in harmony. This balanced standpoint from the Federal Supreme Court affirms a level of reassurance to free zone entities, emphasizing a cooperative framework between federal and

  The recent judgment delivered by the Federal Supreme Court regarding the application of tax liabilities to related companies, even those situated outside the state, in exceptional circumstances where the tax event occurs within the state, is of paramount importance. It not only delineates the legal boundaries of tax obligations among interconnected corporate entities but also sets a precedent for how tax laws are interpreted and applied in cross-border corporate scenarios. This judgment underscores the necessity of a nuanced understanding of the legal and fiscal framework governing such entities, thereby providing a robust foundation for tax planning and compliance, especially in an increasingly globalized business environment. Tax events amongst related entities The Federal Supreme Court’s analysis concerning a tax event and the separation of liabilities among multi-entity enterprises is a nuanced examination of the legal and fiscal responsibilities that these entities bear. The court’s reasoning on the matter sheds light on the intricate fabric of corporate law and tax obligations, particularly in the context of parent and subsidiary companies or branches. The court underscores the distinct legal persona of a subsidiary company, which is conceived through the collaboration of another company, yet operates independently from its parent company. This independence is manifested in its legal and moral personality, enabling it to acquire rights and bear obligations. The subsidiary, with its unique name and domicile, operates as a separate legal entity, its nationality remaining unblended with that of its partners or parent company. On the other hand, the tax event, as delineated by the court, is a pivotal circumstance that triggers tax liability. The court adopts a clear standard in identifying the tax event, which is fundamentally the supply of goods within the state. This standard is instrumental in determining the tax liability, which is incumbent upon the entity where the tax event is realized. The separation of liabilities among multi-entity enterprises is a complex domain, necessitating a meticulous examination of the legal and fiscal dynamics that govern the relationships between parent companies, subsidiaries, and branches. The court’s analysis provides a robust framework for understanding these dynamics and the legal parameters that define tax liability in the context of multi-entity enterprises and multinational companies. The Supreme Court says in this regard: “The subsidiary company is the company that is co-founded by another company and is independent. Originally, from a legal standpoint, it is independent of the parent company, and its legal and moral personality is established, which qualifies it to acquire rights and bear obligations. It is considered a separate legal entity from the partners and the parent company. The subsidiary company has an independent name and domicile, which is the place where its main administration is located. Also, its nationality does not mix with the nationality of the partners. The person liable for tax is the one in whom the event established by law is available. The legislator adopted a clear standard in determining the event that creates the tax liability.” Tax liabilities for out-of-state entities The Federal Supreme Court’s analysis on the application of tax liabilities to related companies, even those situated outside the state, in exceptional circumstances where the tax event occurs within the state, unveils a nuanced understanding of the legal and fiscal framework governing such scenarios. The Court emphasizes the sanctity of the distinct legal persona of each company, underscoring the principle that the tax liabilities of one cannot be arbitrarily imputed to the other. However, it carves out an exception to this rule in extraordinary circumstances, thereby introducing a layer of complexity to the tax liability discourse. The Court’s stance is rooted in a logical necessity that once the tax event is realized, the tax assessment becomes anchored in the legal truth. This notion of a tax event is pivotal as it triggers the tax liability, and its occurrence within the state’s jurisdiction is a critical factor in determining the tax obligations of related companies. The Court highlights that the tax liability is not merely a function of the corporate structure or the domicile of the companies but is intricately tied to the locus of the tax event. This analysis brings to the fore the concept of exceptional circumstances as a determinant of tax liability. The Court posits that in such rare scenarios, the veil of separate legal persona of related companies may be pierced, allowing for the tax liabilities to be assessed in a manner that transcends the conventional boundaries of corporate separateness. This is a significant departure from the traditional understanding of tax liability as being confined to the entity where the tax event is realized. Furthermore, the Court’s discourse illuminates the legal rationale underpinning this exception. It underscores the imperative of a rational and equitable assessment of tax liability, particularly in scenarios where the strict adherence to corporate separateness may lead to an unjust enrichment or evasion of tax obligations. The Court’s analysis is grounded in a pragmatic understanding of the fiscal realities, recognizing the potential for cross-border corporate structures to be employed in circumventing tax liabilities. The Court’s exposition also hints at a broader legal and fiscal paradigm wherein the principles of equity and justice are harmonized with the tenets of corporate law and tax policy. It invites a reevaluation of the legal doctrines governing the assessment of tax liability, particularly in the context of multi-company enterprises with cross-border operations. Moreover, the Court’s narrative underscores the imperative for a meticulous examination of the circumstances surrounding the tax event, advocating for a judicious approach in the assessment of tax liabilities. This nuanced understanding of tax liability, as expounded by the Court, provides a robust framework for navigating the complex terrain of tax law, particularly in scenarios involving related companies with cross-border operations. The Supreme Court says in this regard: “It was decided, according to the judgment of this court, that the legal personality of both companies must be respected, and it is not permissible to penetrate it or decide the liability of one for the tax debts of the other, except

  Wasel & Wasel has represented clients in over two hundred tax dispute procedures in the United Arab Emirates, gaining valuable experience in protecting taxpayers from tax penalties. The tax consequences arising out of deficient payments by debtors in commercial transactions has consistently grown more important as more taxpayers face tax penalties. A recent Dubai judgment introduces a novel perspective to this dynamic. This judgment, which potentially empowers creditors to claim tax penalties from their debtors, represents a significant shift in the commercial and tax law landscape. This development is particularly noteworthy given the evolving tax regime in the UAE, underscoring its potential implications for future commercial interactions. Liquidity Shortfall and Tax Penalties: The Age-Old Dilemma When creditors issue invoices, they anticipate timely payment. However, delays in these payments can lead to a liquidity shortfall, preventing the creditor from meeting their tax obligations. This can result in penalties from the Federal Tax Authority (FTA). These penalties, often substantial, further strain the creditor’s finances, essentially penalizing them for the debtor’s delay. The New Test Established by the Judgment The recent judgment has introduced a potentially groundbreaking test for creditors. The creditor was subject to tax penalties imposed by the FTA and claimed those tax penalties from the debtor. The three-member tribunal addressed the claim over the tax penalties as follows: “Regarding the request for the value added tax penalty, the plaintiff demands that the defendant be obligated to pay the VAT penalty…and whatever accrues until the date of paying the VAT. Given that the plaintiff did not provide evidence of paying the value of this penalty to the Federal Tax Authority, he cannot claim its payment from the defendant.” This implies that if a creditor can provide evidence of having paid the respective tax penalty, they might be able to claim it from the debtor. This test, while seemingly straightforward, could have profound implications for commercial transactions, especially when considering the broader context of the UAE’s evolving tax landscape. Understanding the Scope of Damages  The Civil Transactions Law recognizes both direct and indirect damages. If a particular head of damage encompasses both direct and indirect elements, the direct aspect takes precedence. Nevertheless, this does not preclude the possibility of claiming other heads of damages that are indirect alongside those that are direct. The distinction between direct and indirect damages is further clarified in Articles 283 and 284 of the Civil Transactions Law. Direct damages necessitate a guarantee without any conditions. In contrast, indirect damages require an offence, intent, or an action that leads to harm. If both direct and indirect causes coexist, the ruling leans towards the direct cause. Given this legal framework, it is evident that creditors have a viable avenue to claim tax penalties from their debtors. If a debtor’s delay in payment (the act) leads to a creditor facing tax penalties (the damage), and there is a clear causal relationship between the delay and the penalties, the debtor could be held responsible. UAE Federal Decree-Law No. 47 of 2022: Implications for Companies and Their Debtors The introduction of the UAE Federal Decree-Law No. 47 of 2022 on the taxation of corporations and businesses marks a significant shift in the UAE’s tax regime. With corporations now having to pay taxes on their profits, the financial landscape for businesses has undeniably changed. In this new environment, the judgment’s potential to allow creditors to claim tax penalties from their debtors becomes even more relevant. Companies, now burdened with tax obligations on their profits, might face penalties due to liquidity issues arising from delayed payments by debtors. This judgment provides them with a potential avenue to recoup these penalties. In essence, companies can utilize this legal avenue to ensure that they are not doubly penalized – first by the delay in payments from debtors and subsequently by the tax penalties arising from the new corporate income tax law. This development not only provides a safety net for businesses navigating the new tax regime but also serves as a deterrent for debtors, emphasizing the importance of timely payments in the broader context of the country’s tax obligations. Flexibility of Courts and Evidence Consideration The judgment’s statement, ” Given that the plaintiff did not provide evidence of paying the value of this penalty to the Federal Tax Authority, he cannot claim its payment from the defendant,” opens the door to a broader discussion on evidence. While evidence of payment is a clear route to claiming penalties, the courts’ flexibility in considering other forms of evidence is crucial. For instance, would enforcement actions by the FTA, despite the liquidity of the creditor, be sufficient evidence? This could be particularly relevant in cases where the creditor has made arrangements with the FTA or is contesting the penalty. Other forms of evidence might include communication with the FTA regarding the penalty, documentation of the liquidity shortfall directly resulting from the debtor’s delay, or even evidence of the debtor acknowledging their role in the creditor’s financial strain. Such flexibility would be in line with the pragmatic approach by the UAE courts, focusing on the real-world implications and fairness of the law, rather than a rigid adherence to form. Pragmatic Implications and the Way Forward From a pragmatic standpoint, this judgment, especially when viewed in the context of the UAE’s new tax law, could be transformative for creditors. It offers a potential remedy against the financial strain of delayed payments and the new tax obligations. Moreover, the potential flexibility of the courts in considering varying evidence further strengthens the creditor’s position. However, this potential remedy is not without challenges. Debtors could contest the validity of claims, and the exact nature and type of evidence accepted will likely be refined over time through subsequent judgments. Conclusion This judgment represents a significant development in the commercial and tax law landscape of the UAE. As the country’s tax regime evolves, this judgment offers a potential safety net for businesses, ensuring they are not unduly penalized due to the actions of their

  In the intricate tapestry of construction law within the United Arab Emirates (UAE), delays related to approvals have emerged as a recurring theme in disputes. The courts’ approach to these matters is both nuanced and pragmatic, reflecting a deep understanding of the complex realities of construction projects. This article will dissect three key judgments from the Dubai Courts, each shedding light on the stance of the judiciary on delays arising from construction-related approvals. Judgment 1: Case No. 673 of 2021, Court of Cassation (Dubai) The case involves a maritime construction project. The developer’s failure to obtain necessary approvals, licenses, and permits led to significant delays, resulting in the purchaser’s request for contract termination. Court’s Findings and Reasoning Contractual Obligations and Delayed Approvals: The court found that the developer’s delay in obtaining necessary approvals was not excusable. The developer was expected to study the project’s requirements and obtain all necessary approvals before commencing the project. The delay of over three years was deemed a breach of contractual obligations. Rejection of Force Majeure: The court rejected the developer’s claim of force majeure, reasoning that the delay in obtaining approvals did not constitute an unforeseeable event. The court emphasized that the delay was within the developer’s control and did not render performance impossible. Expert Evidence and Site Inspection: The court relied on an expert committee’s report and site inspection, which revealed that the construction was incomplete and did not meet the agreed specifications. The court found this evidence sufficient to form its belief in the developer’s failure to perform. Interest Rate Adjustment: The court reduced the interest rate from 9% to 5%, balancing the developer’s breach and the purchaser’s legitimate expectations. Relation to Disputes Arising from Approval Delays The judgment offers significant insights into how courts may approach disputes arising from approval delays in construction projects: Pre-Contractual Planning: The judgment emphasizes the importance of thorough planning and understanding of regulatory requirements before entering into a contract. Clear Contractual Terms: The case underscores the need for clear contractual terms addressing potential delays and unforeseen challenges, including approval delays. Judicial Discretion and Evidence Evaluation: The judgment illustrates the court’s discretion in evaluating evidence and understanding the factual matrix, particularly concerning delayed approvals. Judgment 2: Case No. 105 of 2013, Court of Cassation (Dubai) The dispute at hand revolves around a construction project that suffered significant delays. The developer (the appellant) alleged that the delays were caused by factors beyond its control, including changes made by the principal developer and governmental inaction. The buyer (the respondent), on the other hand, contended that the developer’s negligence and failure to meet its fundamental obligations led to the delays. The Court’s Reasoning The Developer’s Obligations: The court embarked on a detailed analysis of the developer’s obligations under the contract and the relevant statutory provisions. It emphasized that the developer’s commitment was not confined to the explicit terms of the contract but extended to all that was necessary for the proper execution of the project, including obtaining necessary approvals and ensuring the readiness of the land. The Developer’s Conduct: The court scrutinized the developer’s conduct, finding no credible evidence to support the claim that the delays were beyond its control. The absence of documents proving governmental interference or changes by the principal developer led the court to conclude that the developer was either negligent or in default of its obligations. The Buyer’s Rights: The court also considered the buyer’s rights under the law, recognizing that the buyer was entitled to withhold payment if the developer failed to fulfill its corresponding obligations. The court’s reasoning was grounded in the principles of good faith and reciprocity that underpin contract law. Analysis and Implications The Importance of Documentation: This judgment underscores the critical importance of proper documentation in construction disputes. The developer’s failure to provide evidence of external factors leading to delays proved fatal to its case. Parties must be diligent in maintaining records that can substantiate their claims, particularly when alleging circumstances beyond their control. The Interplay between Contractual and Statutory Obligations: The court’s interpretation of the developer’s obligations illustrates the complex interplay between contractual terms and statutory provisions. It serves as a reminder that parties must be mindful of not only the express terms of their agreements but also the broader legal framework within which they operate. The Broader Context of Construction Disputes: The judgment also sheds light on the broader context of construction disputes arising from approval delays. It highlights the multifaceted nature of such disputes, encompassing not only legal and contractual issues but also practical considerations such as project readiness, governmental actions, and the conduct of various stakeholders. Judgment 3: Case No. 161 of 2011, Court of Cassation (Dubai) The dispute arose between a contractor and a property owner. The contractor, having completed a significant portion of the construction, alleged breaches due to delayed approvals, which they claimed led to increased costs and project delays. The owner, on the other hand, attributed the project’s delays to the contractor’s actions, particularly their cessation of work pending increased prices. Delayed Approvals: The Heart of the Dispute Cancellation of Annex and Modified License: The court’s analysis delved deep into the impact of delayed approvals. Specifically, it examined the contractor’s claim that the cancellation of parts of the work, such as a service annex, required a halt in work pending a modified license. The court found that such cancellations did not necessarily warrant a work stoppage. Impact on Timelines: The court juxtaposed the actual project delays against the contractual timelines. It underscored the contractor’s refusal to continue work without price hikes as a breach of contract. Yet, it also acknowledged the role of delayed approvals in extending the project’s duration. Increased Costs: The court recognized that delayed approvals, combined with the contractor’s cessation of work, led to escalated costs for completing the remaining work. Damages were awarded, reflecting the multifaceted repercussions of delayed approvals. The Court’s Reasoning The court’s approach was marked by a meticulous examination of the contractual obligations, the parties’ conduct, and

  Wasel & Wasel has represented clients in over two hundred tax dispute procedures in the United Arab Emirates, gaining valuable experience in protecting taxpayers from significant losses over small procedural errors. From the start of a dispute at the reconsideration stage to the final trial at the Federal Supreme Court, the issues extend beyond taxes and penalties. They fundamentally focus on whether procedures have been followed correctly. This focus has been clear in numerous Federal court judgments and tax dispute resolution committee decisions since 2018. As a tax dispute moves through the court system, procedural integrity becomes increasingly scrutinized. The Federal Tax Authority’s litigation team is held as one of the UAE’s most skilled government litigation departments. Therefore, it is crucial to have counsel who are experts in the specific challenges of litigating Federal Tax Authority decisions. This article outlines key procedural judgments from the Federal courts and committees, providing insights for taxpayers on risk assessments and mitigation of taxes and penalties. Part I: Evidencing the Reconsideration Procedure Procedural Requirement The reconsideration procedure necessitates the submission of evidence to establish that the objector has filed a request for reconsideration in accordance with the law. Position of the Courts or Committees The Dubai Tax Dispute Resolution Committee no. 100/2021 emphasized the importance of evidence in the reconsideration procedure: “The evidence was devoid of anything that benefits establishing that the objector had filed a request for reconsideration, in accordance with the procedure set by law until the objection is considered by this committee, which makes the objection request submitted to the committee non-compliant procedurally.” Legislative Impact The Federal Decree-Law No. 28 of 2022 sets the legal framework for the reconsideration procedure, outlining the specific requirements for submitting evidence. Takeaway/Guidance The importance of evidence in the reconsideration procedure cannot be overstated. Taxpayers must ensure that all necessary documentation is included in the reconsideration request to establish compliance with the law. Part II: Scope of the Tax Dispute Procedural Requirement The scope of the tax dispute must be clearly defined and confined to the specific issues at hand. Position of the Courts or Committees The Supreme Federal Court, in cases no. 327/2021, 220/2021, and 181/2021, provided guidance on the scope of the tax dispute: “What the appellant raised regarding the legality of the tax imposition’s origin does not detract from that, as the scope of the relevant lawsuit does not relate to the extent of the legality of the tax imposition basically but its scope is limited to challenging the committee’s decision to cancel the delay penalty in payment, which does not allow exceeding that to reasons that were not a place for the relevant dispute from the beginning.” Legislative Impact The Federal Decree-Law No. 28 of 2022 does not explicitly define the scope of the tax dispute, leaving it to the courts to interpret and apply the law in this regard. Takeaway/Guidance Understanding the specific nature of the dispute and aligning legal arguments accordingly is essential. The scope of the dispute must be confined to the original issues, and overreaching must be avoided. In contrast, before a reconsideration request is filed, the taxpayer must ensure that the underlying decision obtained from the FTA encompasses all the items the taxpayer wishes to dispute. Part III: Discretion in Accepting Late Reconsideration Requests Procedural Requirement The reconsideration procedure allows for the possibility of accepting late requests, provided there are valid reasons for the delay. Position of the Courts or Committees The Emirati judiciary, in Federal Primary Court case no. 424/2019 and 438/2019, considered the discretion in accepting late reconsideration requests: “It is settled that the deadlines for appealing administrative decisions before the general appeal committees are characterized as regulatory deadlines intended for reconsideration of the administrative decision within specific deadlines without keeping them open without a controller for the stability of situations and legal positions. It means that the matter is left to the discretion of the administration in estimating the reasons for the excuse submitted for non-compliance with the deadline or the period specified by law, so if the applicant for reconsideration exceeds this specified period with an excuse accepted by the body, it has to override its will for these dates and address the reconsideration request. Saying otherwise makes the deadline set by the law non-existent, and the deadlines become open without a controller, which leads to instability of situations and legal positions that require the nature of tax laws and legislations due to the financial and economic effects on both parties, the state, and the tax funder. And the appellant company did not provide any reasons for not submitting its reconsideration request to the Federal Tax Authority within the specified period as stipulated in Article 27 of Law No. 7 on Taxes, and therefore the Authority rejected the request or did not accept it, its decision coincides with the correct law and what the tax legislator wanted.” Legislative Impact The Tax Procedures Law No. 7/2017, before being replaced with Decree-Law No. 28/2022, provided the legal basis for this discretion, allowing the administrative body to assess the reasons for non-compliance with stipulated deadlines. Takeaway/Guidance The discretion in accepting late reconsideration requests emphasizes the importance of providing valid reasons for any delay. Taxpayers must be aware of this flexibility but should not rely on it without substantial justification. Part IV: Issuance of a Reconsideration Decision After the Absence Thereof Procedural Requirement In the absence of a decision on a reconsideration request within the stipulated period, the administrative authority may still issue a decision, triggering a new period for recourse to the Tax Disputes Resolution Committee. Position of the Courts or Committees The Federal Supreme Court, in case no. 568/2022, provided guidance on this matter: “As long as this deadline is among the regulatory deadlines, if a person submitted a reconsideration request and the request was not decided within the stipulated period, and he did not resort to the Tax Disputes Resolution Committee after the period specified to decide on his request had passed,