The imposition of VAT and other taxes in the UAE increases the likelihood of tax disputes taking place between taxpayers and tax authorities. As the economic growth rate increases in the country, it is imperative that both business and individuals have knowledge of how to competently resolve tax disputes. This article serves as both an introduction and a detailed guide on Effective Tax Dispute Management in UAE.
Among the major reasons for tax disputes between taxpayers and the Federal Tax Authority (FTA) in the UAE are:
Tax laws sometimes might be complex and may be understood in different ways. Such situations result in disputes between taxpayers and the FTA on how particular provisions should be used.
There could be disagreements on the correct categorization of products/services as well as accurate valuation and transaction price determination for tax purposes.
Disputes can occur due to the possibility that FTA adjusts or denies input tax credit claims submitted by registered tax payers for VAT purposes.
The FTA will challenge the taxpayer, alleging that the taxpayer has arranged the transactions in a way that leads to the tax liability being artificially lowered through evasion or avoidance.
Insufficient tax payments or even tax avoidance as requested by law can prompt tax disputes, and the offender risks paying penalties.
Inaccurate tax return filing mistakes, including incorrect category or tax calculation, may also cause a dispute.
| Mechanism | Description |
|---|---|
| Administrative negotiation | Informal discussion between taxpayers and tax authorities to resolve issues. |
| Tax Dispute Resolution Committee (TDRC) | Independent committee that hears and decides administrative appeals from taxpayers. |
| Judicial appeal | Taxpayers can appeal TDRC decisions to courts - Federal Court of First Instance, Court of Appeal and lastly Cassation Court. |
| Alternative Dispute Resolution (ADR) | Mediation, arbitration, etc provide flexible resolution outside the formal court system. |
The UAE taxpayers have to devise the following solutions to efficiently deal with the emerging tax disputes:
One of the essential things that taxpayers should do is to be proactive and mitigate any chances of disputes happening at the beginning. This involves a high degree of tax compliance, not just an accurate and timely submission of returns but also the proper keeping of reliable tax records with the help of tax experts on ambiguities and the disclosure of all material facts.
When filing taxes, gain knowledge of tax laws, rules and procedures. Understand the rights you hold as a tax payer including the way of resolving disputes. This will be apposite to solving problems at an early stage.
If you get a tax notice, don't neglect it. Instead, contact the agency responsible for processing your taxes and provide all the required documents to support your claim. Ask for clarification and reply in the designated time in order to avoid penalties for late reply or default.
In most cases, such disputes are best settled in administrative actions. The taxpayer can submit to the Federal Tax Authority (FTA) documentations, explanations or clarifications, and, in addition, take part in the informal negotiation stage. [4]
If the administrative-level negotiations do not settle the dispute, taxpayers can file their case with the Tax Dispute Resolution Committee before seeking an appeal from the judicial level if necessary. Alternative dispute resolution along with an adversarial approach should also be considered.
While doing so, complete, accurate and organized documentation of all proceedings, submissions, and evidence must be established for the tax period under dispute. Proper documenting ensures a great evidence.
Getting advice and information from experienced tax advisors and consultants on the issue of tax conflict resolution strategies will improve the management of the dispute and outcome.
An important point to highlight is that many tax disputes in the UAE can be effectively settled through the way of arbitration or mediation. ADR Mechanisms are a better alternative in such cases where one of the most attractive value propositions is their flexibility and the maintenance of confidentiality. That is what helps parties to come to the table so that they can compromise with each other with the help of an outside figure who does not have a personal stake. ADR leads to savings of both resources and time, and functions as a preventive measure for longer litigation.
Q1. What are common causes of tax disputes?
A: Among the most frequent causes are misinterpretation of tax regulations, tax classification/valuation problems, missing input tax credit claims, allegations based on tax avoidance/evasion, and accounting errors.
Q2. How can I effectively manage a tax dispute with tax authorities?
A: To have a successful tax dispute resolution, taxpayers should make efforts like responding promptly to tax assessments, carefully studying the reasons for the assessment and utilizing administrative procedures. Additionally, proper documentation, solutions to disputes, and help from tax advisors needs to be considered.
Q3. What steps should I take when facing a tax dispute?
A: First, perform negotiations with FTA, then if the issues are still not resolved, proceed to TDRC, and after that if no beneficial outcome is achieved take the appeal to the courts.
Q4.Are there alternative dispute resolution mechanisms for tax disputes?
A: Yes, a dispute settlement mechanism such as arbitration and mediation is indeed provided by the FTA, which is performed as per the published guidelines.
Q5. How long does it typically take to resolve a tax dispute?
A: The duration of the whole procedure may differ depending on the complexity of the dispute, the degree of cooperation between parties, and the processes used. Simpler cases may get resolved in a couple of months in the presence of administrative bodies. On the contrary, the judicial litigation process at higher court levels may take up to over a year to conclude the cases.
Q6.What are the potential consequences of unresolved tax disputes?
A: There are severe implications of unresolved tax disputes on the enterprises for example, financial penalties, restrictions on the services accessed from the FTA, blacklisting and in the extreme corruption cases then either imprisonment or payment of a fine can be applied as the punishment.
In conclusion, the management of tax disputes is regarded as vital for corporations operating in the UAE as the country looks forward to establishing its own tax system. Since the corporate tax law is subject to changes, businesses are encouraged to seek the help of experienced tax consultant who operates in the UAE. Engaging the services of TAX DISPUTE CORPORATE TAX UAE will guide your business through the regulations, manage Tax Disputes in the most professional form, and maintain continued tax compliance.
Mostafa is a seasoned Tax Consultant with over 5 years years of experience gained in diverse taxations matters. He has vast expertise in settling tax disputes with the Federal Tax Authority and handling of tax procedures in compliance with tax laws. He is adept in investigating underlying tax intricacies and offering expert tax advisory. He is also well-versed in conducting tax analysis’s and negotiations with the Tax Regulators, upon tax preparation and filing. Mostafa specializes in the areas of Tax law, Auditing, Accounting and Banking law.