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In brief

On 14 October 2020, the UAE Federal Supreme Court passed its judgment on an appeal filed by the UAE Federal Tax Authority (FTA) in relation to the Court of Appeal’s judgment concerning the imposition of penalties resulting from a voluntary disclosure. The case was handled by a UAE local law firm on behalf one of the UAE’s largest financial institutions.

The Court of Appeal’s decision had followed the established position (since the beginning of 2019) that the UAE Tax Procedures Law distinguishes penalties for late payment of tax as shown in submitted returns or notified assessments, from fines and penalties applicable to voluntary disclosures.

However, and in a very significant twist, the UAE Federal Supreme Court took a different position and decided the following:

  1. Late payment penalties should also apply to voluntary disclosures (up to 300% of the tax due);
  2. Late payment penalties apply from the due date of the tax return and not from the date of the voluntary disclosure; and
  3. The voluntary disclosure penalties specified under Item 11 of the Schedule of Penalties attached to the Cabinet Resolution No. 40 of 2017, apply to voluntary disclosures (in addition to late payment penalties: 50% or 30%, or 5% of the tax due (depending on the timing of the submission of thevoluntary disclosure)).

For ease of reference, the full reasoning of the Court is set out in the Annex hereto.

In brief, based on this judgment, taxpayers submitting voluntary disclosures could be subject to penalties of up to 356% of the tax due. The Federal Supreme Court’s judgment reverses the position that had been established over the past 18 months, by virtue of which the penalties payable by taxpayers had been adjudged by the Courts to be limited to administrative penalties as mentioned in point (iii) above. The Federal Supreme Court takes the view that voluntary disclosures are merely amended tax returns in nature.

It is also worth noting that the Federal Supreme Court’s judgement also decided “to refer the lawsuit to the Abu Dhabi Federal Court of Cassation for adjudication de novo (anew) with a different panel“. We will be keeping an eye on how the Court of Appeal is going to handle the case based on the Federal Supreme Court’s direction.

This is a major development in the UAE tax landscape, as the Federal Supreme Court’s judgment may affect upcoming decisions to beissued by the various Tax Dispute Resolution Committees (“TDRC”) and Federal Courts. We expect that this judgment will have a significant impact on critical business sectors involved in transactions in respect of which the interpretation of Value Added Tax (VAT) or excise tax under the UAE law and regulations is at best unclear and uncertain, resulting to huge financial exposures.

The UAE Constitution states that Federal Supreme Court judgments are binding and conclusive. However, this does not preclude the Federal Supreme Court’s position to change or offer more flexibility in the interpretation/application of certain law provisions.

This latest judgment confirms the necessity for taxpayers to adequately consider  appropriate strategies to adopt before or when pursuing tax challenges before the TDRC and Federal Courts. We are happy to support you throughout the challenge process in relation to your tax dispute and litigation matters. For further information, please contact Mohamed El Baghdady and Reggie Mezu of the UAE Tax team.

This alert is prepared by Mohamed El Baghdady (Senior Associate, Tax Litigation, Dubai).

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Mohamed El Baghdady is an Associate in Baker McKenzie's Dubai office.


Reggie Mezu is a Senior Special Counsel in Baker McKenzie’s Dubai office. He focuses on corporate tax and has practiced tax for nearly 30 years, including in the UAE for 15 years. He has multi-jurisdictional and multi-disciplinary professional qualifications in law, accountancy and taxation.