The UAE recently issued a form (and email submission process) for tax challenges to streamline the process of challenging a reconsideration decision of the Federal Tax Authority.
Persons are naturally prone to errors and mistakes, particularly when attempting to comply with a new tax regime, hence familiarity with the procedures to challenge a decision and evidence intent is necessary.
Tax evasion is not a novel phenomenon and has been addressed explicitly in the tax reforms that took place in the United Arab Emirates.
In 2010, the UAE Federal Supreme Court (FSC) ruled in favor of an extradition request by the United Kingdom against a person convicted of tax evasion.
In light of the constant globalization of the United Arab Emirates’ tax regime with respect to country-by-country reporting, economic substance legislation, and increase of double taxation treaties (such as the UAE-KSA Double Taxation Treaty) it is crucial that foreign investors are aware of not only what could give rise to tax evasion in the United Arab Emirates, but also the approach of the judiciary and prosecution in such instances, and with respect to tax evasion related extradition orders.
Albeit tax evasion is a criminal act which would be prosecuted by the respective public prosecution and adjudicated by the criminal circuit of the overseeing court, parties would find it valuable to ensure that challenges to decisions of the Federal Tax Authority (FTA) via the means granted for by the Tax Procedures Law clearly evidence their bona fide intent and lack of any malintent to commit tax evasion.
At the time of the FSC ruling discussed below, UAE law did not explicitly address ‘tax evasion’ as it does now, but the FSC applied comparative provisions of Federal Law No. 3/1987, the Penal Code, (Articles 381 to 399).
New Official Tax Challenge Form
Where a person is unsatisfied with a decision by the FTA, a request for reconsideration can be submitted to the FTA within twenty working days as of the date of the FTA’s notification of the said decision. The FTA is subsequently required to respond to the reconsideration request within twenty working days.
If unsatisfied with the FTA’s decision to the reconsideration request, the person may submit a challenge to the FTA’s reconsideration decision before a Tax Dispute Resolution Committee (TDRC). The TDRC will accept the challenge on a procedural basis only subject to the challenge being made within the appropriate time limit and payment of all taxes and penalties due to the FTA.
There are three TDRCs currently operational; one in Abu Dhabi for persons with tax address registration in Abu Dhabi, one in Dubai for persons with tax address registration in Dubai, and one in Sharjah for persons with tax address registration in Sharjah, Ajman, Fujairah, Ras al-Khaimah, and Umm al-Quwain.
The TDRCs are overseen by the Ministry of Justice.
Recently, the Ministry issued an official form to be filled out and used for the submission of challenges to the TDRC(s) which may be submitted in person or via email.
The official form requires general details such as the value of the taxes and fines, dates of application and reconsideration requests, shareholders and branches, and so on, but also evidence of:
- The capacity of the person submitting the challenge.
- Evidence of empowerment (POA) of a legal representative (if applicable).
- Memorandum explaining the reasoning of the objection.
- The decision of the FTA being objected to.
- Receipt of payment of the tax or specified fines.
As to item 2 (memorandum explaining the reasoning of the objection), it is important to note that the TDRCs are comprised of a judge and two technical experts. Hence, the memorandum submitted should not only be technical but should also provide for the legal arguments and references to the appropriate case precedents to advocate the position of the party submitting the challenge.
The challenges can be submitted in person or by email to the Ministry of Justice, and upon confirmation of the availability of the prerequisites, the Ministry personnel are required to refer the challenge to the TDRC within two working days.
For a copy of the form, or assistance with the process, please contact us.
Decisions by a TDRC for disputes below one hundred thousand shall be considered final and writs of execution. As for disputes for values above one hundred thousand, the person (or the FTA) may appeal the decision before the Federal Primary Court.
Minister of Justice Decision No. 237/2019 established a circuit designated to hear tax disputes in the Federal Primary Court, and Minster of Justice Decision No. 238/2019 established a similar circuit in the Federal Court of Appeal.
Bypassing the Federal Primary Court may be possible if the challenge is to recuse/dismiss a member of the TDRC via Article 3 of Decision No. 238, such as is done via Articles 114 and 115 of the Civil Procedures Law. This would occur, for example, if the TDRC member is a spouse of the litigant and rules on the challenge, nonetheless.
There are three stages before the Federal Courts; the Federal Primary Court, and Federal Appeals Court, and the Federal Supreme Court. The last of which would issue a final and binding judgment.
Federal Supreme Court Ruling on Tax Evasion Extraditions
In its ruling in 2010 on a request by the UK to the UAE extradite a person convicted of tax evasion in the UK; the FSC found that decisions and orders issued by the judicial authority of a requesting State are not binding on the Federal Supreme Court unless otherwise provided by law. The latter was the case in this instance of tax evasion.
The FSC’s opinion was that the judicial authorities could adhere to a request to extradite the convicted on charges of evading payment of value-added tax by fraud as it was a crime that is similarly provisioned for in the laws of the United Arab Emirates – subject to the availability of the formal and objective conditions stipulated in the agreements between the two countries in accordance with international cooperation.
It was also found that the extradition agreement concluded between the UAE and the UK does not contain an explicit provision requiring the suspension of extradition proceedings in a lawsuit by the issuance of an order or decision by the judicial authorities of one of its parties.
It was the FSC’s opinion that the appeal before the FSC was based on the argument that there was a mistake in the contested judgment for its non-adherence to Article (53/4) of Federal Law No. 39/2006 on judicial cooperation in criminal matters which is specific to the cases of refusal of requests for judicial assistance, including requests for assistance to a financial crime such as tax offenses. The applicable law is the extradition agreement concluded between the United Arab Emirates and the United Kingdom, and not the law of international cooperation, which is contrary to the contested judgment and must be rectified by the application of the applicable law.
The FSC also took the position that it rules on the appeal presented before it and is not concerned with the decisions and orders of the judicial authorities in the United Kingdom. Unless otherwise provided by law.
Whereas the extradition agreement between the United Arab Emirates and the United Kingdom has not expressly stated that the issuance of an order or decision by the judicial authorities of one of the parties to the withdrawal of the extradition request shall cease the proceedings of the extradition request before the Federal Supreme Court; Federal Law No. 39/2006 did not provide for this as addressed in the appeal by the Federal Public Prosecution vis-à-vis the decision of the Extradition Court.
The FSC’s rationale was that as it was established in the evidence that the wanted person is subject to judicial follow-up by the authorities of his country on charges of evading the payment of value-added tax, and this act was respectively a criminal act in the United Arab Emirates and the United Kingdom – as indicated by the extradition request and pleadings, which set out the articles of criminalization and punishment in the law of the two countries.
Tax Evasion in UAE Legislation
Articles 1 of both the Tax Procedures Law and the Excise Tax Law defines ‘tax evasion’ as the “…use of illegal means, resulting in the reduction of the amount of the due tax, non-payment thereof or a refund of a tax that the Person did not have the right to have refunded…”.
Article 17 of the Tax Procedures Law grants the FTA respective auditor the right to enter any place where a taxable person conducts business, stores goods, or keeps the registers to conduct a tax audit with no prior notification in the event that the FTA has grounds to believe that the taxable person has engaged in tax evasion.
Article 26 of the Tax Procedures Law sets out the penalties for tax evasion as imprisonment and/or a penalty of up to five times the amount of the evaded tax imposed on:
- the taxable person who deliberately abstains from settling any payable tax or administrative penalties.
- the taxable person who deliberately understates the actual value of his business or who abstains from adding any related business thereto with the purpose of not attaining the required registration limit.
- the person who imposes and collects amounts from his clients as a tax without being registered.
- the person who deliberately submits wrong information and incorrect data to the authority.
- the person who deliberately conceals or destroys documents or other materials that he is required to keep and submit to the authority.
- the person who steals, misuses or causes the destruction of documents or other materials in the possession of the authority.
- the person who bans or prevents the authority’s employees from performing their duties.
- the person who deliberately decreases the payable tax through tax evasion or complicity in tax evasion.
Article 23 of the Excise Tax Law provides that the instances of tax evasion are where a person is deemed to have committed tax evasion if they conduct any of the following:
- Bringing or attempting to bring excise goods into or out of the State without payment of the relevant due tax in part or in full.
- Producing, transferring, acquiring, storing, transporting or receiving excise goods the due tax of which was unpaid with the intention of avoiding the payment of due tax.
- Placing false distinguishing marks on excise goods, contrary to the provisions of the law, with the intent of evading the payment of due tax or receiving unlawful refunds.
- Submitting any false, counterfeit or unreal documents, returns or records, with the intent of evading the payment of due tax or receiving unlawful refunds.
Article 77 of the VAT Law address tax evasion as being the case “…If it is proven that a person who is not a registrant acquires goods referred to in Clause (3) of Article 48 of this Decree-Law, claiming that he is a registrant, he shall be considered as having committed tax evasion and shall be subject to the penalties provided for in Federal Law No. 7/2017 on Tax Procedures.”