Legal Advice No. 3778
Issued on 07/08/2023
1- The legislator established an integrated regulation for the value-added tax, according to which he designated those involved by the provisions of that tax and the goods and services subject to the tax.
2- Definition of the tax invoice.
3- The legislator distinguishing between two types of value-added tax, which are input tax and output tax.
4- What is the refundable tax.
5- Determination of the refundable input tax.
6- Obliging the legislator who collects the value-added tax according to a tax invoice to deliver it to the Federal Tax Authority and treat such amounts similarly to the due tax.
7- Interpretation of the law as a single unit that moves in harmony within the framework of the objective for which the legislator established the law.
8- Inadmissibility to interpret the expression with which the legislator formulated the legislative text in a way that deviates from its meaning or in a way that would distort it from its context, whether by separating it from its subject or by going beyond its intended purposes.
9- Inadmissibility to formulate legislative texts in the void or to extract them from their reality specified while taking into account the interest emanating from them, which is a social interest targeted by the legislator when drafting such texts.
10- Considering the social interest as the ultimate goal of every legislative text, a framework for determining its meaning, and a basis for ensuring the organic unity of the texts.
11- Not limiting the concept of the legislative text to the issues mentioned in its wording, as its meaning covers what is not mentioned in its expressions, which can be understood from its spirit and reference.
12- The legislator determining, in accordance with the Value Added Tax Law, the tax base, the basis for its assessment, those obligated to pay the tax, the rules for assessing, collecting, and supplying it, its payment method, the mechanism for its refund, and cases of exemption from it.
13- The legislator obligating taxpayers, when they issue a tax invoice, to supply it to the Federal Tax Authority, and link the supply of that tax to the verification of the issuance of a tax invoice without any other restriction, and explicitly stipulating that these amounts are treated as the due tax in the Law.
14- The legislator determining the cases of refund of the input tax, the method thereof, and definition of the refundable tax.
15- Means of clarifying the controls related to the refundable tax refund mechanism.
16- Nature of the amounts that the Federal Tax Authority can refund.
17- Obligation of the Federal Tax Authority to return the refundable tax to the refund applicant in the event where such amounts are transferred to the Authority’s account, whether by the refund applicant himself or by the person who collected the value-added tax according to a tax invoice.
18- The basis for refunding the refundable input tax to the refund applicant is verifying the fact that the tax has been paid and transferred to the Federal Tax Authority and subsequently to the public treasury in the State, even if that tax is related to more than one supply transaction, if the refund applicant meets the other conditions required by the Value Tax Law and its Implementing Regulation.
A letter was received from the Federal Tax Authority regarding the legal controls related to the input tax refund mechanism, in particular if the tax is linked to more than one supply transaction.
The facts of the presented matter conclude that the Federal Tax Authority received applications for refund of input tax from some registrants in a number of sectors based on the legal texts related to tax refund in Federal Decree Law no. (8) of 2017 on Value-Added Tax.
Whereas the Authority examined and reviewed the submitted refund applications, one of the examination procedures included verifying that the previous supplier applying for refund had supplied the payable tax so that the Authority could refund the tax to the supplier applying for refund. However, the Authority was surprised that the previous suppliers had not paid the tax that had been collected from the supplier applying for refund, which raises the question about the extent to which the person applying for tax refund is entitled to obtain the value of the tax that he paid to the previous supplier despite the failure of such supplier to pay that tax.
The Legislation Department cited that, according to Article (1) of Federal Decree-Law no. (8) of 2017 on Value-Added Tax, the definition of refundable tax is the amounts that have been paid and the Authority can refund them to the taxpayer based on the provisions of this Decree-Law, and the definition of tax invoice is a written or electronic document that records the occurrence of any taxable supply and its details.
According to Article (53) of the Decree-Law itself, “The payable tax for any tax period shall be calculated as the total output tax that shall be paid in accordance with the provisions of this Decree-Law during the tax period, less the total input tax refundable by the taxable person during the same period.”
According to Article (54) of the same Decree-Law: The input tax refundable by the taxable person for any tax period is the total input tax paid on goods and services that were used or intended to be used to do any of the following: a- Taxable supplies.
b- Supplies made outside the State in case they would be subject to tax if they were made inside the State.
c- Supplies specified in the Implementing Regulation of this Decree-Law that are made outside the State and would have been treated as exempt from tax had they been made inside the State.
2- If a taxable person imports goods through another implementing State and these goods had as final destination the State at the time of import, the taxable person shall have the right to treat the tax paid on the import of goods into the implementing State as a refundable input tax in accordance with the conditions specified in the Implementing Regulation of this Decree-Law.
3- If a taxable person transfers goods to the State after they were supplied in his favour in one of the other implementing States, he shall have the right to treat the tax paid on the goods in the implementing State as a refundable input tax in accordance with the conditions specified in the Implementing Regulation of this Decree-Law.
4- The taxable person shall not be entitled to redeem the input tax related to the tax paid in accordance with Clause (2) of Article (48) of this Decree-Law.
5- The Implementing Regulation of this Decree-Law shall specify the cases in which input tax is excluded from refund.
According to Clause (4) of Article (65), amended by Federal Decree Law no. (18) of 2022, “Any person who receives any amount as tax or for which a tax invoice is issued shall pay it to the Authority and treat it similarly to the due tax under the provisions of this Decree-Law”.
Article (38) of Federal Decree-Law no. (28) of 2022 on Value-Added Tax: The taxpayer shall have the right to submit a refund application for any tax he has paid if he is entitled to a refund in accordance with the Tax Law and it is found that the amount he paid exceeds the payable tax and administrative fines, in accordance with the procedures specified by the Implementing Regulation.
2- The Authority shall review the application submitted under Clause (1) of this Article and notify the taxpayer of its decision whether to reject or accept the application.
In accordance with Article (26) of Cabinet Decision no. (74) of 2023 on the Implementing Regulation of Federal Decree Law no. (28) of 2022 “Tax Refund Procedures”.
1- The taxpayer who is entitled to tax refund in accordance with the Tax Law or Decree-Law may submit a refund application according to the form and mechanism determined by the Authority.
2- The Authority shall decide on the refund application in accordance with Clause (1) of this Article and notify the taxpayer of its decision within (20) twenty working days from the date of submitting the refund application or within any other period that is necessary to decide on the refund application, provided that the taxpayer is notified of the same.
3- If the Authority approves the refund application, it shall, within five (5) working days from the date of notification in accordance with Clause (2) of this Article, take procedures to refund the amount to the taxpayer according to the mechanism determined by the Authority.
4- The Authority may postpone the tax refund until it receives any tax returns that are due to be submitted to the Authority and were not submitted upon receipt of the tax refund application. The excess amount in this case, if any, shall be refundable after submitting those tax returns, taking into account the conditions stipulated in the Decree-Law and the Tax Law.
The Legislation Department concluded from the above texts That the legislator established an integrated regulation for the value-added tax, according to which he designated those involved by the provisions of that tax and the goods and services subject to the tax, and explicitly stated that the value-added tax is a tax imposed on the import and supply of goods and services at every stage of production and distribution, so that the tax becomes due upon the trading of the goods by those responsible for collecting and supplying it through what is known as a tax invoice.
The legislator also defined the tax invoice as a written or electronic document that records any taxable supply and its details.
The legislator distinguished between two types of value-added tax, which is the input tax, i.e. the tax paid by the person or due from him when goods or services are supplied to him or when he conducts import. As for the second type of tax, it is the output tax, which means the tax imposed on the taxable supply and on every supply that is considered taxable supply.
The legislator also defined the refundable tax as the amounts that have been paid and that the Authority can refund to the taxpayer based on the provisions of the Decree-Law.
The legislator also specified, under Article (54), the refundable input tax and explicitly stipulated that the total input tax paid on goods and services that were used or intended to be used to make taxable supplies or supplies made outside the State, provided that they would have been subject to tax had they been made inside the State, or supplies specified in the Implementing Regulation that are made outside the State and would have been treated as exempt from tax had they been made inside the State.
The legislator also obligated any person who collects value-added tax based on a tax invoice to submit it to the Authority and explicitly stipulated that these amounts be treated in the same way applied on the due tax.
Whereas it is established in the interpretation approaches that the law interprets itself, its texts shall not be understood in isolation from each other, but rather they shall be viewed as a single unit that moves in harmony within the framework of the goal for which the legislator established the law.
In order to demonstrate the purposes that the legislator aimed to achieve by approving a specific provision, the expression with which the legislator formulated the legislative text cannot be interpreted in a way that deviates from its meaning or in a way that leads to distorting it from its context, whether by separating it from its subject or by going beyond its intended purposes, and those purposes are relied upon in interpreting the expressions of the text if being limited to its literalness would contradict the clear, legitimate goals that the legislator aimed at.
The reason for the same is that legislative texts are not formulated in void, and it shall not be permissible to extract them from their reality, and taking into account the interest emanating from them, which is a social interest that these texts shall revolve on, and it is always assumed that the legislator aimed to achieve them, taking his formulation of the legislative texts as a way to do so.
Hence, this social interest is the ultimate goal of every legislative text, a framework for determining its meaning, and a basis for ensuring the organic unity of the texts organised by legislative work.
It is also established as a general principle in the principles of the rules of interpretation of legal texts that the concept of the legislative text does not only include the issues that it addresses in its wording, but also includes its indication of what is not mentioned in its expressions, and which is understood from its spirit and reference. (See the ruling of the Federal Supreme Court - Civil and Commercial Rulings - Appeal No. 1 of 2014 Judicial).
In application of the above, and whereas the legislator, in accordance with the value-added tax law, determined the tax base, the basis for its assessment, those obligated to pay the tax, the rules for assessing, collecting, and supplying it, its payment method, the mechanism for its refund, and cases of exemption from it, and other matters related to the structure of this tax.
Out of his will to tighten control over tax collection and reduce the burden on the Federal Tax Authority, he decided to oblige taxpayers, when they issue a tax invoice, to supply it to the Authority, and made the basis for supplying that tax to verify the fact of issuing a tax invoice without providing any other restriction, and he explicitly stipulated that these amounts be treated as the due tax in Law.
For the input tax refund, he specified the cases and method of refund, and the legislator defined the refundable tax as the financial amounts that were paid and the Authority can refund to the taxpayer in accordance with the provisions of the Decree-Law.
In order to clarify the controls related to the mechanism of refunding the refundable tax, it was necessary for the Legislation Department to clarify the will of the legislator, investigate his intent, and determine the goal he aims for from the concept of the refundable tax.
As it is found from extrapolating the definition of that tax that the legislator used the expression “amounts that the Authority can refund,” and it is understood from the word refund that those financial amounts have already been collected by the Authority or have been supplied to it, and those amounts have devolved to the State’s public treasury.
That is, the Federal Tax Authority refunds the refundable tax to the refund applicant in the event where those amounts are transferred to the Authority’s account, whether by the refund applicant himself or by the person who collected the value-added tax according to a tax invoice, and the fact that it is said otherwise, it leads to an illogical result, meaning that the State treasury will bear the return of financial amounts that were not submitted to it, which is contrary to sound legal logic and creates huge financial burdens on the State.
Applying the above to the matter at hand indicates that the basis for refunding the refundable input tax to the refund applicant is verifying the fact that the tax has been paid and transferred to the Federal Tax Authority and thus to the public treasury in the State, even if that tax is linked to more than one supply transaction, then the governing standard in that issue is the transfer of those tax amounts to the Authority so that the Authority can return those amounts to the refund applicant if he meets the other conditions required by the Value Added Tax Law and its Implementing Regulation.
The Legislation Department concluded that the basis for refunding the refundable input tax to the refund applicant by the Federal Tax Authority is verifying the fact that the tax has been paid and transferred to the Authority and thus to the public treasury in the State, even if that tax is linked to more than one supply transaction, then the governing standard in that issue is the transfer of those tax amounts to the Authority so that the Authority can return those amounts to the refund applicant if he meets the other conditions required by the Value Added Tax Law and its Implementing Regulation.

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