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Wed 15 Apr 2020 10:54 AM

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FTA to refund AED20m to UAE firm after being incorrectly penalised

Such cases may lead to amendments in VAT law, says Habib Al Mulla

FTA to refund AED20m to UAE firm after being incorrectly penalised

Dr Habib Al Mulla said the case is the first of its kind to see the court reverse the amount of penalties imposed by the FTA.

An Abu Dhabi court has ordered the Federal Tax Authority (FTA) to refund nearly AED20 million ($5.4 million) to a UAE firm after it was found to have incorrectly penalised it.

The company’s legal representatives Baker McKenzie Habib Al Mulla told Arabian Business the Abu Dhabi Federal Court of First Instance passed the judgement on April 7 and requested the FTA to pay back AED19,897,345.

The firm, which is considered one of the world’s largest trade fair and event organisers, had initially challenged the FTA’s administrative tax penalties in February last year.

“The company submitted voluntary disclosures before the FTA in relation to certain services it was unsure were taxable, and so didn’t collect the tax amount from the taxable parties,” said Mohamed ElBaghdady, senior associate, Dispute Resolution at Baker McKenzie Habib Al Mulla.

He added that the company had applied for a reconsideration request with the FTA and an objection before the Tax Dispute Resolution Committee (TDRC), with respect to the imposed taxes and penalties in March last year, on the basis that the voluntary disclosure requests were submitted due to the company's confusion on the applicability of the relevant taxes and that the penalties imposed by the FTA have been miscalculated (even in case of tax applicability).

While its request was rejected by the Reconsideration Committee and the TDRC, the Abu Dhabi Federal Court of First Instance decided in favour of the company.

Dr Habib Al Mulla told Arabian Business such cases are few but not unusual because the VAT law is relatively new and certain provisions may have more than one meaning or approach to them.

"The Federal Tax Authority has taken a conservative approach when it comes to the interpretation of the provisions of the law… There are not many cases in fact in the court because the law is relevantly new,” said the chairman of Baker McKenzie Habib Al Mulla.

"However, the few cases that went to the court were positive in the sense that the court has taken a more liberal approach when it comes to the interpretations of the provisions of the law and has found these cases against the decision that the FTA has reached."

First case

Al Mulla said the case is the first of its kind to see the court reverse the amount of penalties imposed by the FTA, while a relative case saw the court rule in favour of another company with regards to tax miscalculations by the authority.

"So it’s not unusual. It’s a healthy indication of the interaction with the law. The court has taken a liberal and positive approach,” Al Mulla said, adding that such cases may ultimately lead to certain amendments in the UAE’s taxation laws.

"I believe these court cases and authorities will ultimately lead to the establishment of strong jurisprudence which will be the foundation of how the law should be read, and it could also lead to a situation where the legislator will intervene and will amend certain provisions of the federal VAT law to get it in line with decisions of the courts,” he said.

Arabian Business has reached out to FTA for comment. 

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