This Public Clarification is intended to inform persons of the changes in the Tax Procedures Law, in relation to three main changes:
- Mechanism and requirements for objection and appeal by taxpayers;
- Alternative mechanism for objection and appeal by Government entities; and
- Mechanism of waiving, refunding, and payment of administrative penalties (“Penalties”) as instalments.
The amendments to the Tax Procedures Law are effective from 1 November 2021,
Mechanism and requirements for objection and appeal by taxpayers:
The tax procedures in the UAE include a mechanism to challenge decisions issued by the Federal Tax Authority (“FTA”). The decision dispute process starts with an application for reconsideration. If a person still disagrees after the FTA has issued its decision in respect of a request for reconsideration, the person may lodge an objection with the Tax Disputes Resolution Committee (“TDRC”) and subsequently appealing before the competent court.
The changes in the Tax Procedures Law encompass two major aspects of change in relation to the procedures for objection and appeal, namely:
- Extension of the timelines within which a person may object or appeal against an FTA decision;
- Easement of requirements to pay Penalties, by removal of the requirement to pay such Penalties before access to TDRC and only requiring partial payment of Penalties before access to courts.
Alternative mechanism for objection and appeal by Government entities:
As an exception to the general rules for objections and appeals to the TDRC and competent court, the Cabinet shall issue a Decision adopting an alternative mechanism of objection and appeal if the parties to the dispute are any of the Federal or local Government entities specified in that Cabinet Decision.
Pending the Cabinet Decision and its enforcement, the general objection and appeal rules will apply to objections and appeals of Federal and local Government entities concerning tax disputes.
Mechanism of waiving, refunding, and payment of administrative penalties (“Penalties”) as instalments:
Penalties may be levied where a person commits an offence. There may, however, be circumstances beyond the person’s control which may need to be considered. As per the Tax Procedures Law amendment, the FTA’s authority to waive Penalties was modified. As a result of the amendment, the previous committee reviewing the excuses and evidences in respect to applications to reduce or waive Penalties no longer exists. A new committee with the mandate to approve the payment of Penalties in instalments, and waiving or refunding penalties in full or in part, will be formed.
Timelines for objection and appeal
In order to grant taxpayers a wider window of opportunity to object to the FTA’s decisions regarding that taxpayer, the timelines for objections and appeals have been extended as following:
- Application for reconsideration:
Based on the amendment, any person may submit the application for reconsideration within 40 business days from the date the person was notified of the FTA’s decision in connection with the person.
Before the amendment, the person had to apply within 20 business days from the date the person was notified of the decision.
- Issuing the reconsideration decision:
Based on the amendment, the FTA shall issue a decision on the reconsideration request within 40 business days from the date of receiving the application.
Before the amendment, the FTA was bound to issue the decision within 20 business days.
- Objecting to the TDRC:
Based on the amendment, the person shall submit the objection to the reconsideration decision within 40 business days from the date of being notified of the reconsideration decision.
Before the amendment, the person had 20 business days from the date the person was notified of the reconsideration decision to object against the reconsideration decision.
- Appeal before the competent court:
Based on the amendment, the final decisions of disputes exceeding AED 100,000 are considered executory instruments if they were not appealed, by the person or the FTA, before the competent court within 40 business days from the date of notification of the TDRC decision.
Before the amendment, the final decisions of the same value would have been deemed as executory instrument if they were not appealed before the competent court within 20 business days from the date of notification of the TDRC decision.
Requirement to Settle Penalties – TDRC
Before the amendment, persons were required to pay all relevant outstanding taxes and Penalties related to the matter before being eligible to lodge an objection with the TDRC.
From 1 November 2021, persons may submit an application to the TDRC despite not having paid the Penalties imposed, as long as the full amount of tax has been settled, as well as all other conditions are met.
Requirement to Settle Penalties – Competent Court
Before the amendment, persons were required to pay all relevant outstanding taxes and Penalties before being eligible to lodge an objection with the TDRC.
According to the amended Tax Procedures Law, as a prerequisite to appealing before the competent court, the person shall submit, among others, proof that:
- The full amount of tax, as determined by the decision being challenged (i.e. the amount of tax as determined by the decision of the TDRC or the competent court issuing the decision that the person is now challenging before the higher competent court), was paid. The amount of tax will, therefore, differ where the decision of the courts on the matter change. Hence, where the amount of tax as decided by the TDRC or the competent court increases as per the decision of the following levels, the person is required to pay the difference before being eligible to take the matter to the higher competent court; and
- At least 50% of the Penalties, as determined by the decision being challenged (i.e. the amount of Penalty as determined by the decision of the TDRC or the competent court issuing the decision that the person is now challenging before the higher competent court), was settled. The amount of Penalties, just like the tax amount, will differ where the decision of the TDRC or the courts on the matter change. Hence, where the amount of Penalties as decided by the TDRC or the competent court is increased by the higher competent court, the person is required to pay 50% of the increase before being eligible to proceed to the next level.
Penalties can be paid directly to the FTA through the person’s e-Services account. Alternatively, the person may provide an approved bank guarantee in favor of the FTA. The FTA will be publishing detailed guidance relating to the bank guarantee process at a later date.
In case any of the above listed requirements is not met, the appeal will not be accepted.
Penalty installment, waiver, and refund
As per the Tax Procedures Law amendment, the Cabinet will issue a decision detailing the controls and procedures based on which a new committee may approve payment of Penalties by instalments, or full or partial waiver or refund.
This new committee will be established and chaired by His Highness the Chairman of the FTA or his deputy, and will include two Board Members of the FTA.
The new committee may issue decision:
- approving the Penalties to be made in instalments;
- to waive Penalties in full or part; or
- to refund Penalties in full or part.
Consequently, any requests that are received by the FTA to waive Penalties or to pay Penalties in instalments, will only be processed once the Cabinet Decision stating the controls and procedures is enacted. Further information on such controls and procedures will be issued by the FTA in due course.
Source : Federal Tax Authority