Cassation No. 227 of 2020 - Administrative
Issued on 14/10/2020
Panel: President / Muhammad Abdul Rahman Al-Jarrah - Chief Judge of the Circuit - and counsellors / Ashraf Muhammad Shehab and Sabri Shams Al-Din.
1- The relationship between the Federal Tax Authority and the taxable person shall not be considered as a contractual relationship, but rather as an regulatory relationship always arising from law.
2- Where the legislator stipulates that a tax is due on a specific date, the taxable person shall pay it on that date, even if the collection of the said tax is regulated by the submission of original or subsidiary declarations.
3- The legislator did not stipulate that the tax shall be deemed payable upon submission of the tax return, but rather on the date it becomes due for payment.
4- The taxable person’s submission of an incorrect tax return for the tax period requires the correction of the errors by submitting a voluntary disclosure of the correct due taxes.
5- The tax return and voluntary disclosure shall be submitted for the payable tax whose payment falls due and the late payment thereof entails the imposition of a delay fine due to without the possibility to argue that the legislator limited the imposition of the administrative fine upon late payment of the due tax, to the tax mentioned in the tax return without the voluntary disclosure.
6- The fine imposed for submitting the voluntary disclosure is prescribed for the mere submission of the voluntary disclosure itself, and it differs from the fine imposed for late payment of the payable tax mentioned in this tax return and subject to the provision of late payment of the tax mentioned in the voluntary disclosure.
7- The failure to impose a delay fine on the tax contained in the voluntary disclosure would deprive the State treasury of the due taxes for a long period, in such a manner that the voluntary disclosures become the predominant tool for disclosing tax dues.
8- The legally prescribed delay fine shall be imposed upon failure to pay the due tax on the legally prescribed date, whether these taxes are contained in the tax return or in the voluntary disclosure.
9- The contested committee’s decision cancelling the decision objected to as to the part of imposition of delay fines for the tax differences mentioned in the voluntary disclosure, shall be deemed ungrounded, since the payment of the fine for submitting the voluntary disclosure does not replace the payment of the delay fine for the due tax differences in this voluntary disclosure.
Federal Tax Authority. Tax. Fine. Delay Fine. Tax return. Voluntary disclosure. Law “Application thereof”. Judgment “Invalid reasoning”. Reversal “Acceptable reasons”.
- The relationship between the Federal Tax Authority and the taxable person is not a contractual relationship, but rather a regulatory relationship governed by jus cogens rules.
- The legislator imposed on the taxable person to pay the tax on a specific date, even if its payment is regulated by the submission of original or subsidiary declarations because they are executive procedures to recover the State’s right in the tax established by law and not by the tax return.
- The legislator did not stipulate that the tax shall be deemed payable upon submission of the tax return, but rather on the date it becomes due for payment, according to the definition of Article 1 of Law No. 7 of 2017 on the Tax Procedures and Article 1 of Law No. 8 of 2017 on the Value-Added Tax.
- The taxable person shall submit a tax return for each tax period. If the tax return is incorrect, this error shall be rectified by submitting a voluntary disclosure of the correct due tax in accordance with Article 10 of Law No. 7 of 2017 on the Tax Procedures.
- The tax return and voluntary disclosure shall be submitted for the payable tax whose payment falls due. A delay fine shall be imposed due to late payment of the payable tax stated in the voluntary disclosure and whose payment falls due according to Item No. 9 of Table (1) attached to Cabinet Decision No. 40 of 2017, and this may not be invalidated by arguing that the delay fine is imposed only upon failure to pay the due tax mentioned in the tax return without the voluntary disclosure.
- The voluntary disclosure is, in fact, an amendment to the basic tax return, and therefore the provision governing the latter shall be applicable to the former being a branch of the original. Reason therefor?
- The fine imposed for submitting a voluntary disclosure differs from the delay fine imposed due to late payment of the tax mentioned therein, since each fine has its scope of action and provisions that cannot be mixed with the other.
- The failure to impose the delay fine for the tax contained in the mentioned in the voluntary disclosure is deemed a pretext to deprive the State treasury of the due taxes for a long period until the taxable person submits the voluntary disclosure for the tax differences, and that payment thereof becomes subject to the will of the taxable person.
- The failure to pay the due tax on time. Requires the imposition of the delay fine, whether contained in the tax return or the voluntary disclosure.
- An example of an invalid reasoning.
Whereas it is prescribed that the relationship between the Federal Tax Authority and the taxable person is not a contractual relationship, but rather a regulatory relationship governed by jus cogens rules, therefore, the obligation to pay the payable tax debt always arises from the law. Further, where the legislator stipulates that a tax is due on a specific date, the taxable person shall pay it on that date, even if the collection of the said tax is regulated by the submission of original or subsidiary declarations, because these declarations are merely executive procedures to recover the State’s right in the tax established by law and not by the tax return or the voluntary disclosure. Also, the legislator did not stipulate that the tax shall be deemed payable upon submission of the tax return, but rather on the date it becomes due for payment, pursuant to the definition of Article 1 of Law No. 7 of 2017 on the Tax Procedures and Article 1 of Law No. 8 of 2017 on the Value-Added Tax. Accordingly, the legislator imposed on the taxable person to submit a tax return for each tax period and where this tax return is incorrect, the taxable person shall apply to correct the tax return by submitting a voluntary disclosure, pursuant to Article 10 of Law No. 7 of 2017 here-above mentioned. In both cases, the tax return and the voluntary disclosure shall be submitted for the payable tax whose payment falls due, and the late payment thereof entails the imposition of a delay due to pursuant to Item No. 9 of Table (1) attached to Cabinet Decision No. 40 of 2017, and this may not be invalidated by arguing that the delay fine is imposed only upon failure to pay the due tax mentioned in the tax return without the voluntary disclosure, claiming that the legislator did not impose a fine due to late payment of the tax differences mentioned in the voluntary disclosure, as this argument is an error in understanding the nature of the voluntary disclosure, which is in fact an amendment to the basic tax return. Hence, the fine applies to it - i.e., the voluntary disclosure - being a subsidiary of the original, i.e., the basic tax return, especially that the tax return as well as the voluntary disclosure are merely executive procedures to collect the payable tax that does not arise from the voluntary disclosure or tax return, but from the law which prescribed them according to jus cogens rules. Also, arguing that the legislator imposed a specific fine for submitting the voluntary disclosure with which it is impermissible to impose other fines on the payable tax mentioned in this disclosure is another error in understanding the nature of the said fine, as this fine is imposed for submitting a voluntary disclosure and differs from the delay fine imposed due to late payment of the tax mentioned therein, which applies to the late payment of the tax stated in the tax return as previously detailed, which means that each fine has its scope of action and provisions that cannot be mixed with the other. In addition, the failure to impose the delay fine for the tax contained in the voluntary disclosure denotes that voluntary disclosures are the predominant tool for declaring the tax dues, which leads - without justification - to depriving the state treasury of the due taxes for a long period until the taxable person submits the voluntary disclosure for the tax differences, and therefore, their maturity date becomes subject to the will of the taxable person, and not subject to the rule of law and in implementation thereof, which is not acceptable legally and logically. Based on the foregoing, the failure to pay the due tax on the date specified by law requires the infliction of the delay fine established by law, whether these taxes are contained in the tax return or the voluntary disclosure as stated here-above.
Whereas the present dispute revolves around whether or not the respondent bank is obligated to pay a delay fine for late payment of the due tax differences contained in the voluntary disclosure, and since the appellant is obligated to pay this delay fine, as the payment of the fine for submitting the voluntary disclosure does not replace the payment of the delay fine for the due tax differences mentioned in this disclosure as per the foregoing, and then the contested committee’s decision to cancel the decision objected thereto as to the part of imposing delay fines - for the tax differences mentioned in the voluntary disclosure - shall be deemed ungrounded, and this may not be invalidated by the plea raised by the respondent that the imposition of a delay fine for the taxes contained in the voluntary disclosure renders the position of the taxable person who submits the voluntary disclosure as a guarantee to the State treasury worse than the taxable person who does not submit this disclosure in the first place, which is inapposite, since the voluntary disclosure of tax differences is not only a guarantee for the State treasury, but it is also a means of rectifying the error of the taxable person himself in the tax return - or the resulting tax assessment - therefore, the aforementioned person had, in all cases, an obligation to correct the errors stated in his tax return in order to preserve the state’s entitlements, otherwise he would be liable for the crime of tax evasion that holds him criminally liable, and then the taxable person's rectification of the error in the voluntary disclosure is a rectification of his own error and prevents him from being subjected to criminal accountability, and the foregoing may not be invalidated by the plea raised by the respondent that the purpose of the voluntary disclosure is not only to correct the error of the taxable person, but also to correct the error of the Authority when it assesses the tax, based on the fact that the purpose of the voluntary disclosure is to correct the error of the taxable person, whether in the tax return itself or the assessment based on the former, since in all cases, the error rectified by the voluntary disclosure is attributed to the taxable person, who shall verify the accuracy of information and data specified for tax purposes, because the taxable person would avoid any errors required to be redressed by the voluntary disclosure if he verifies the accuracy of the information shown in his tax return, whether these errors are contained in the tax return or the tax assessment, which prompted the legislator to impose an independent fine specified in Item No. 11 of Table (1) attached to the Cabinet Decision aforementioned on the taxable person upon submission of the voluntary disclosure in all cases.
Whereas based on the foregoing, and since the contested decision is ungrounded, and the contested ruling decided to confirm the judgment of the Court of First Instance rejecting the lawsuit filed to request the cancellation of this decision, the ruling shall be deemed as having violated the law, and consequently, it shall be reversed.
The Court,
Whereas, in the facts - as apparent in the contested judgment and all the cassation documents - the appellant has filed on 12/5/2019, Lawsuit No. 196 of 2019 before Abu Dhabi Federal Administrative Court - Plenary - against the respondent requesting the cancellation of Decision No. 10 of 2019 and the confirmation of the Authority’s decisions imposing on the respondent to pay the delay fines equal to 7,863,581,78 dirhams, on the grounds that the respondent submitted the tax returns for the period from 1/1/2018 until 31/3/2018 and the period from 1/4/2018 until 30/6/2018, and in September 2018, the said respondent submitted more than one voluntary disclosure due to errors in the tax returns for the two mentioned periods, and that the appellant issued an assessment of the administrative fines against the respondent in accordance with the provisions of the Decision of the Prime Minister No. 40 of 2017, which resulted in the imposition of fines for submitting a voluntary disclosure and other fines due to late payment of the tax. On 2/1/2019, the respondent submitted a petition for review of the Authority’s fine decision. The Tax Committee confirmed the voluntary disclosure fines and the recalculation of the fines in a manner leading to reducing the fines in favour of the respondent. The appellant filed an objection before the Dubai Tax Disputes Settlement Committee. On 8/4/2019, the Committee issued its decision to cancel the decision objected to as to the part of the delay fines equal to 7,863,581,78 dirhams and the imposition on the defendant, to return this amount to the objecting party. The appellant added that it objects to this decision on account of its violation of the law, as it was based on the fact that there is no legal obligation imposing on the respondent to pay delay fines for the tax differences mentioned in the voluntary disclosure, in violation of Federal Law No. 7 of 2017 on the Tax Procedures, and the appellant presented its demands. In the session dated 15/10/2019, the court dismissed the lawsuit. The appellant filed an appeal against the aforementioned judgment under No. 171 of 2019. In the session dated 28/1/2020, the Abu Dhabi Federal Court of Appeal ruled to reject the appeal, therefore, the appellant filed the present appeal in cassation.
Whereas the court heard the cassation in a Council Chamber, it deemed that it is valid for hearing and set a session therefor.
Whereas the appellant objects to the contested judgment, stating that it erred in the application of the law, contained deficiencies in causation, and flaws in inference, and breached the right of defence, since it rejected the case on the grounds that the legislator limited the delay fine - in the event that the taxable person fails to pay the tax due on the time specified therefor - to the tax stated in the tax return and not the tax differences mentioned in the voluntary disclosure, for which no delay fines shall be imposed, and the conclusion reached by the judgment is contrary to the tax law provisions, because the tax arises from the law that established the legal obligation to pay it within the period specified by it, and not from the tax returns that are just templates wherein this tax is stated, and that the tax differences contained in the voluntary disclosure are merely a means to redress the taxable person’s error in the basic tax return, and then, this disclosure is in fact an amendment to the tax contained in the tax return. Consequently, a delay fine shall be imposed on the tax differences mentioned in the voluntary disclosure, just like the tax mentioned in the basic tax return, and this may not be altered by the payment of the fine for the voluntary disclosure, since this fine is prescribed for the mere submission of this disclosure, and it differs from the fine imposed for late payment of the tax, as each fine has its scope of action. Further, the failure to pay the delay fine for the tax differences mentioned in the voluntary disclosure leads the taxable person to exploit this delay as a pretext to delay payment of the public treasury dues without justification, and therefore, it shall be reversed.
Whereas this objection is apposite, since it is prescribed that the relationship between the Federal Tax Authority and the taxable person is not a contractual relationship, but rather a regulatory relationship governed by jus cogens rules, therefore, the obligation to pay the payable tax debt always arises from the law.
Further, where the legislator stipulates that a tax is due on a specific date, the taxable person shall pay it on that date, even if the collection of the said tax is regulated by the submission of original or subsidiary declarations, because these declarations are merely executive procedures to recover the State’s right in the tax established by law and not by the tax return or the voluntary disclosure.
Also, the legislator did not stipulate that the tax shall be deemed payable upon submission of the tax return, but rather on the date it becomes due for payment, pursuant to the definition of Article 1 of Law No. 7 of 2017 on the Tax Procedures and Article 1 of Law No. 8 of 2017 on the Value-Added Tax.
Accordingly, the legislator imposed on the taxable person to submit a tax return for each tax period and where this tax return is incorrect, the taxable person shall apply to correct the tax return by submitting a voluntary disclosure, pursuant to Article 10 of Law No. 7 of 2017 here-above mentioned.
In both cases, the tax return and the voluntary disclosure shall be submitted for the payable tax whose payment falls due, and the late payment thereof entails the imposition of a delay due to pursuant to Item No. 9 of Table (1) attached to Cabinet Decision No. 40 of 2017, and this may not be invalidated by arguing that the delay fine is imposed only upon failure to pay the due tax mentioned in the tax return without the voluntary disclosure, claiming that the legislator did not impose a fine due to late payment of the tax differences mentioned in the voluntary disclosure, as this argument is an error in understanding the nature of the voluntary disclosure, which is in fact an amendment to the basic tax return. Hence, the fine applies to it - i.e., the voluntary disclosure - being a subsidiary of the original, i.e., the basic tax return, especially that the tax return as well as the voluntary disclosure are merely executive procedures to collect the payable tax that does not arise from the voluntary disclosure or tax return, but from the law which prescribed them according to jus cogens rules.
Also, arguing that the legislator imposed a specific fine for submitting the voluntary disclosure with which it is impermissible to impose other fines on the payable tax mentioned in this disclosure is another error in understanding the nature of the said fine, as this fine is imposed for submitting a voluntary disclosure and differs from the delay fine imposed due to late payment of the tax mentioned therein, which applies to the late payment of the tax stated in the tax return as previously detailed, which means that each fine has its scope of action and provisions that cannot be mixed with the other.
In addition, the failure to impose the delay fine for the tax contained in the voluntary disclosure denotes that voluntary disclosures are the predominant tool for declaring the tax dues, which leads - without justification - to depriving the state treasury of the due taxes for a long period until the taxable person submits the voluntary disclosure for the tax differences, and therefore, their maturity date becomes subject to the will of the taxable person, and not subject to the rule of law and in implementation thereof, which is not acceptable legally and logically.
Based on the foregoing, the failure to pay the due tax on the date specified by law requires the infliction of the delay fine established by law, whether these taxes are contained in the tax return or the voluntary disclosure as stated here-above.
Whereas the present dispute revolves around whether or not the respondent bank is obligated to pay a delay fine for late payment of the due tax differences contained in the voluntary disclosure, and since the appellant is obligated to pay this delay fine, as the payment of the fine for submitting the voluntary disclosure does not replace the payment of the delay fine for the due tax differences mentioned in this disclosure as per the foregoing, and then the contested committee’s decision to cancel the decision objected thereto as to the part of imposing delay fines - for the tax differences mentioned in the voluntary disclosure - shall be deemed ungrounded, and this may not be invalidated by the plea raised by the respondent that the imposition of a delay fine for the taxes contained in the voluntary disclosure renders the position of the taxable person who submits the voluntary disclosure as a guarantee to the State treasury worse than the taxable person who does not submit this disclosure in the first place, which is inapposite, since the voluntary disclosure of tax differences is not only a guarantee for the State treasury, but it is also a means of rectifying the error of the taxable person himself in the tax return - or the resulting tax assessment - therefore, the aforementioned person had, in all cases, an obligation to correct the errors stated in his tax return in order to preserve the state’s entitlements, otherwise he would be liable for the crime of tax evasion that holds him criminally liable, and then the taxable person's rectification of the error in the voluntary disclosure is a rectification of his own error and prevents him from being subjected to criminal accountability, and the foregoing may not be invalidated by the plea raised by the respondent that the purpose of the voluntary disclosure is not only to correct the error of the taxable person, but also to correct the error of the Authority when it assesses the tax, based on the fact that the purpose of the voluntary disclosure is to correct the error of the taxable person, whether in the tax return itself or the assessment based on the former, since in all cases, the error rectified by the voluntary disclosure is attributed to the taxable person, who shall verify the accuracy of information and data specified for tax purposes, because the taxable person would avoid any errors required to be redressed by the voluntary disclosure if he verifies the accuracy of the information shown in his tax return, whether these errors are contained in the tax return or the tax assessment, which prompted the legislator to impose an independent fine specified in Item No. 11 of Table (1) attached to the Cabinet Decision aforementioned on the taxable person upon submission of the voluntary disclosure in all cases.
Whereas based on the foregoing, since the contested decision is ungrounded, and the contested ruling decided to confirm the judgment of the Court of First Instance rejecting the lawsuit filed to request the cancellation of this decision, the ruling shall be deemed as having violated the law, and consequently, it shall be reversed with referral.

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