Resolving Tax Disputes with the Federal Tax Authority

A Business Guide to Resolving Tax Disputes with the Federal Tax Authority (FTA)

In any sophisticated tax system, disagreements between the tax authority and taxpayers are inevitable. With the UAE’s relatively new Corporate Tax and established VAT regimes, businesses may find themselves facing assessments, penalties, or decisions from the Federal Tax Authority (FTA) with which they do not agree. These situations can be stressful and financially significant. However, the UAE has established a clear, structured, and multi-tiered legal framework for resolving such disputes, designed to ensure fairness and due process for all parties.

Understanding this framework is not just for lawyers; it is an essential piece of knowledge for every business owner, CFO, and finance manager. Knowing your rights, the required procedures, and the strict timelines is critical to successfully navigating a tax dispute. Ignoring an assessment or failing to follow the correct appeal process can lead to the loss of your right to object, resulting in the FTA’s decision becoming final and enforceable. This comprehensive guide will walk you through the entire lifecycle of a tax dispute in the UAE, from preventative measures and initial reconsiderations with the FTA to appealing before the Tax Disputes Resolution Committee (TDRC) and, if necessary, the UAE courts.

Part 1: The Best Defense – Preventing Disputes Before They Arise

While this guide focuses on resolving disputes, the most strategic approach is to minimize the chances of them occurring in the first place. Disputes often arise from common triggers that can be managed proactively.

Common Triggers for Tax Disputes:

• Ambiguous Interpretation of Law: Applying complex rules, such as those for transfer pricing or the deductibility of expenses, can lead to differing opinions between a taxpayer and the FTA.
• Insufficient Documentation: Failing to provide adequate proof for a claimed deduction or a specific tax position during an audit is a primary cause of adverse assessments.
• Procedural Errors: Simple mistakes in a tax return, incorrect calculations, or missed filing deadlines can trigger penalties and assessments that may lead to disputes.
• Business Restructuring: Complex transactions like mergers, acquisitions, or significant changes in a business model can attract FTA scrutiny and lead to differing tax interpretations. Expert guidance from a business consultancy is vital during such changes.

Proactive compliance is your first and strongest line of defense. This involves not just meeting deadlines, but ensuring the underlying data is unimpeachable. Regular internal audits and a comprehensive accounting review can identify and rectify potential issues before they ever come to the FTA’s attention.

Part 2: The First Step – The FTA Reconsideration Process

If you receive a decision or assessment from the FTA that you believe is incorrect, your first formal step is to file a reconsideration request directly with the FTA. This is a mandatory prerequisite before you can escalate the matter to the next level.

Key Aspects of a Reconsideration Request:

1. The Time Limit: A reconsideration request must be submitted within 40 business days of the date of the original FTA decision. This is a strict deadline that cannot be extended.
2. The Submission: The request is filed electronically via the EmaraTax portal. It must be a well-reasoned submission outlining your case clearly and concisely.
3. The Content: Your submission must include:
   • The specific decision you are contesting.
   • The detailed legal and factual grounds for your objection. You must explain precisely why you believe the FTA’s decision is incorrect, referencing specific articles of the tax law.
   • All supporting documents, evidence, and calculations that substantiate your position. This could include contracts, invoices, legal opinions, and financial analyses.
4. The FTA’s Review: The FTA will review your submission and its own initial findings. They have 40 business days to issue a decision on your reconsideration request. They may uphold their original decision, accept your position fully, or accept it partially. If they do not issue a decision within this timeframe, it may be deemed a rejection.

This stage is your best opportunity to resolve the issue amicably and efficiently. A professionally prepared, well-documented, and legally sound reconsideration request has a significant chance of success.

Part 3: Escalation – The Tax Disputes Resolution Committee (TDRC)

If your reconsideration request is rejected by the FTA, or if they fail to respond within the stipulated timeframe, your next recourse is to file an appeal with the Tax Disputes Resolution Committee (TDRC). The TDRC is an independent, quasi-judicial body established to adjudicate tax disputes.

Navigating the TDRC Process:

• Filing the Appeal: You must file your objection with the TDRC within 40 business days of the date of the FTA’s decision on your reconsideration request.
• The “Pay to Play” Rule: Before your case is accepted by the TDRC, you must have paid all undisputed taxes and penalties. Additionally, you may be required to pay a specified percentage of the disputed tax and penalties to the FTA. This is a critical financial consideration.
• The Committee’s Composition: The TDRC is chaired by a judge and includes expert members with extensive experience in finance and tax. This ensures that your case is heard by individuals who possess both legal and technical expertise.
• The Hearing: The TDRC will conduct hearings where both you (or your representative, such as a tax agent or lawyer) and the FTA present your cases. You can submit further evidence and make oral arguments.
• The Decision: The TDRC’s decision is considered binding and has the force of an executive writ. It can be enforced like a court judgment. The committee can uphold, overturn, or modify the FTA’s decision.

The TDRC is a formal and serious proceeding. Success at this stage requires a robust legal and technical argument, expertly presented. It often demands the combined expertise of tax advisors and legal counsel.

Part 4: The Final Recourse – The UAE Federal Courts

If either you or the FTA is dissatisfied with the decision of the TDRC, there is a final avenue of appeal through the UAE’s formal court system.

The Judicial Process:

1. Appeal to the Federal Primary Court: An appeal against a TDRC decision must be filed with the Federal Primary Court within 40 business days of the TDRC’s decision.
2. Further Appeals: The judgment of the Federal Primary Court can be further appealed to the Federal Court of Appeal, and finally, on points of law, to the Federal Supreme Court (or Court of Cassation).

Litigation in the courts is a significant undertaking. It is generally focused on errors in the application or interpretation of the law, rather than a re-examination of the facts. This stage requires specialized legal representation and can be a lengthy and costly process. It is typically reserved for cases of high value or significant legal principle.

The Power of Impeccable Records

Throughout every stage of this process, from the initial audit to the highest court, the strength of your case will always come back to the quality of your records. A dispute can be won or lost based on a single, well-documented transaction. This is why your daily financial hygiene is so critical. Using a robust accounting system like Zoho Books ensures that every entry is logged, categorized, and has a digital document trail. In a dispute, this isn’t a convenience; it’s your arsenal of evidence.