Habib Al Mulla & Partners, a member firm of Baker & McKenzie International successfully represented a global e-commerce company in a series of appeals filed against administrative penalties imposed by the Federal Tax Authority (“FTA“) in connection with delayed payment of VAT due. The UAE Federal Supreme Court recently dismissed an appeal filed by the FTA to impose administrative fines and penalties against the company, and ordered that the FTA to repay the full amount of the penalties to the company.
Habib Al Mulla & Partners, a member firm of Baker & McKenzie International had also successfully represented the company at all stages of the dispute resolution process: before the Court of Appeal, Court of First Instance, and Court Appointed Experts. Both the Court of First Instance and Court of Appeal had also rejected the FTA’s appeal against the decision of the TDRC, and allowed the company’s counter appeal against the decision of the TDRC (in doing so, both Courts held that no penalties should be due based on the court experts’ findings).
The Federal Supreme Court held that the administrative penalties were imposed on the incorrect premise that the company was late in paying the due tax, as the delay mainly stemmed from the FTA’s failure to share the correct transfer details for payments from abroad, as published by the FTA at the relevant time.
The company had, in this case, taken all necessary steps to communicate with the FTA and the Central Bank to address the issue. After the lapse of a considerable time, the matter was resolved and payment was received by the FTA. Nonetheless, given the lengthy delay before the company was able to obtain the required details to make the payment, significant delay penalties were assessed by the FTA on the company.
The company therefore took all the necessary legal procedures to challenge the administrative penalties imposed before the competent courts.
The Court, in this case, deemed that the decisive factor in the matter was the actual date for enabling the company to transfer the due tax amount according to the details provided by the FTA, which is the date the Central Bank amended the details (in order to correct the transfer details provided by the FTA). That then enabled the company to complete the transfer process. These facts were confirmed by the opinion given by the court appointed expert as mandated by the court.
The UAE legislature has also adopted this approach (which the Court concluded in the present Case) in Cabinet Resolution No. (105) of 2021 concerning the Controls and Procedures of the Administrative Penalty Waiver and Installment, as Article (4) of this Decree stipulated that: “The administrative penalty waiver shall be applied if the following condition is met: … E. There is a general defect in the Authority’s systems, payment systems, or used telecommunications services, whenever this is a direct cause of a group of persons’ failure to implement tax duties on their time.”
This judgment sets a final and conclusive precedent that could be very relevant in the consideration of several ongoing tax challenges, including any other taxes. It establishes a clear principle pertaining to the appropriate conditions for the “waiver of administrative penalties”.
The Federal Supreme Court’s relevant reasoning is set out in the Annex hereto.
These judgments confirm the robustness of the UAE judiciary with respect to the adjudication of tax matters, upholding taxpayers’ lawful rights to challenge the FTA’s assessment on taxes and penalties. When challenging the FTA’s assessment, taxpayers should adhere to the specific procedures and timeline for re-calculations, re-considerations and objections before the TDRC and the relevant UAE courts.
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Over the last two years, Habib Al Mulla & Partners, a member firm of Baker & McKenzie International has increasingly been instructed to handle multiple first-of-its kind cases involving complex issues of VAT, excise duty, and penalties relating to tax returns and voluntary disclosures and others. The matter was led by senior lawyer Mohamed El Baghdady who specializes in tax litigation. We have successfully represented clients across various industries, including consumer goods and retail, services and banking and finance, before the tax tribunals and courts.
We are happy to support you throughout the challenge process in relation to your taxes and penalties. For further information, please contact Mohamed El Baghdady and Reggie Mezu, members of our UAE Tax Litigation team.
This alert is prepared by Mohamed El Baghdady (Senior Associate, Tax Litigation, Dubai).