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In brief

The UAE Federal Supreme Court recently dismissed an appeal filed by the Federal Tax Authority (FTA) against taxes and administrative fines and penalties imposed by the FTA against a UAE company, a Dubai-based beverage distributor, in connection with excise taxes. Baker McKenzie Habib Al Mulla represented the company. The court also ordered that the FTA repay the full amount of the penalties to the company. This was considered to be the first time the Federal Supreme Court issued a judgment in favor of a taxpayer and removed all taxes and administrative penalties levied by the FTA.

Baker McKenzie Habib Al Mulla had also successfully represented the company at all stages of the dispute resolution process: before the Court of Appeal, Court of First Instance, and the Tax Dispute Resolution Committee (TDRC). Both the Court of First Instance and Court of Appeal rejected the FTA’s appeal against the previous decision of the TDRC, and allowed the company’s counter appeal against the decision of the TDRC (in doing so, both Courts held that no penalties should be due).

The Federal Supreme Court held that the FTA wrongly imposed administrative penalties, because the FTA imposed them on the incorrect premise that the company had collected funds as tax, and had not reported or voluntarily declared such tax. The Court declared that the FTA’s argument was invalid for the following reasons:

  • Since it was established that the goods for which “tax” was alleged to have been collected were legally not subject to tax at the time, because the company was then not a stockpiler for excise tax purposes, the company cannot be considered to have made an incorrect tax declaration;
  • If there was no basis for collection of the excise tax, then there can be no evidence or grounds to support the imposition of administrative taxes;
  • As the obligation to declare tax did not exist during the period prior to implementation of the law, there was no tax due to be paid from the total amounts collected by the company from customers.
  • The FTA is not entitled to retain the amounts paid as “tax”, and must refund the amounts, as in such case it is not acting as a “beneficiary” but acts as an “intermediary” for the return of wrongfully collected amounts.

Based on the abovementioned reasons, the Court declared that the approach the FTA adopted to impose administrative penalties was groundless in law.

This judgment sets a final and conclusive precedent that could be very relevant in the consideration of several ongoing tax challenges, including those that are VAT-related. It establishes a clear principle pertaining to the substantive application of tax as the basis for the imposition of administrative penalties.

The Federal Supreme Court’s relevant reasoning is set out in the Annex hereto.

Challenge process

These judgments confirm the robustness of the UAE judiciary with respect to the adjudication of tax matters, upholding taxpayers’ lawful rights to challenge the FTA’s assessment on taxes and penalties. When challenging the FTA’s assessment, taxpayers should adhere to the specific procedures and timeline for re-calculations, re-considerations and objections before the TDRC and the relevant UAE courts.

Seek legal counsel

Over the last two years, Baker McKenzie Habib Al Mulla has increasingly been instructed to handle multiple first-of-its-kind cases involving complex issues of VAT, excise duty, and penalties relating to tax returns and voluntary disclosures and others. Led by senior lawyer Mohamed El Baghdady who is the firm’s go-to specialist on tax litigation, we have successfully represented clients across various industries, including consumer goods and retail, services and banking and finance, before the tax tribunals and courts. Mohamed’s track record shows multiple successes achieved on behalf of a growing client base in the field of tax disputes.

We are happy to support you throughout the challenge process in relation to your taxes and penalties. For further information, please contact Mohamed El Baghdady and Reggie Mezu, members of our UAE Tax Litigation team.

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