Federal Supreme Court

Appeal No. 39 of 2023 Administrative

Summary of the Case

• Case Name: Appeal No. 39 of 2023 Administrative
• Court: Federal Supreme Court
• Date: November 8, 2023
• Judges: Presided by Judge Mohammed Abdul Rahman Al Jarrah, with Judges Dr. Mohamed Ali Sweilem and Dr. Hassan Mohamed Hassan.

Federal Supreme Court

Session of Wednesday, November 8, 2023

Presided over by Judge / Mohammed Abdul Rahman Al Jarrah “Head of the Circuit”

And Membership of Judges / Dr. Mohamed Ali Sweilem and Dr. Hassan Mohamed Hassan.

Decision in Appeal No. 39 of 2023 Administrative

• Tax Procedures “Tax Registration, Declaration, and Voluntary Disclosure: Penalty for Submitting a Voluntary Disclosure Different from the Penalty for Late Payment of Tax Differences” “Grievance Route for Exemption from or Installment of the Imposed Penalty on the Taxpayer.”
• Court “Court of First Instance: Its Authority to Understand the Facts of the Case.”
• Expertise “Expert’s obligation” to a Specific Method to Accomplish the Task is Not Necessary.

1. Tax obligation originates from the law - tax registration and preparation of a tax return for each tax period. Obligatory on every taxpayer. It is found that the declaration is incorrect. The way to correct it. The taxpayer submits a voluntary disclosure to correct the declaration. Tax assessment or tax imposition decision issued based on the declaration. Its origin is the law establishing the tax. The law specifies a certain date for the tax to become due. Implication. The right to collect it is from this date, not the date of issuance of the assessment. Reason for that.
2. The penalty prescribed for submitting a voluntary disclosure is different from the penalty for late payment of tax differences. Reason. Each penalty has its scope of application and ruling. Effect of that. Failure to pay the due tax on its due date, whether stated in the original declaration or the voluntary disclosure, requires the imposition of the prescribed late payment penalty.
3. Understanding the facts of the case, examining the evidence and documents submitted, and comparing them. Within the authority of the Court of First Instance. Condition for that.
4. The voluntary disclosure penalty consists of two penalties: fixed and proportional. Imposed for each tax period containing an error in the tax return. There is a proportional penalty in it. Imposed on the difference not paid due to the error. Reason for that. To prevent the taxpayer from obtaining a tax advantage. It is proven that the appellant submitted two declarations for two tax periods with less tax due, then submitted voluntary disclosures for them, and a proportional penalty was imposed on the tax difference, and late payment penalties were calculated on the unpaid amount revealed by the voluntary disclosures according to the correct tax bases. The appellant’s objection to the appealed judgment is based on an error in understanding the facts for rejecting its claim and upholding what the appealed authority applied in terms of penalties. A matter of fact within the authority of the Court of First Instance to understand the facts.
5. Objecting to the judgment for violating the law by imposing repeated penalties for twelve voluntary disclosures in violation of Article 55 of the Executive Regulations of the Value Added Tax Law. An objection to a substantive law unrelated to the voluntary disclosure is inadmissible. Reason for that. The applicable law is Federal Law No. 7 of 2017 Concerning Tax Procedures, with its Articles 8, 10, and 8 of Cabinet Resolution No. 36 of 2017.
6. It is proven that the appellant submitted the voluntary disclosures after a request for information from the Federal Tax Authority for tax audit. Effect. It is subject to a 50% penalty. Objecting to the judgment for violating the law. Inadmissible. Basis for that.
7. The relationship between the Federal Tax Authority and the taxpayer is regulatory, not contractual. Implication. The date specified by law for paying the tax has nothing to do with the tax returns submitted by the taxpayer or the assessments conducted by the authority. It is proven that the appellant did not pay the tax within the legally prescribed period and then submitted a voluntary disclosure admitting the violation stipulated in Clause 9 of the Schedule attached to Cabinet Resolution No. 40 of 2017. Objecting to the judgment for violating the aforementioned resolution and the inapplicability of the violation to the case. Inadmissible.
8. The grievance to be exempted from the imposed penalty on the taxpayer or to pay it in installments is by resorting to the committee stipulated in Cabinet Resolution No. 105 of 2021. Reason for that. As it is a procedural decision that must be implemented immediately upon its issuance and the termination of previous decisions. It is proven that the appellant did not submit any request to this committee or to the Tax Disputes Resolution Committee for exemption or reduction of penalties. Effect. The objection to the judgment for error in not applying Cabinet Resolution No. 49 of 2021 regarding that is incorrect and inadmissible.
9. The expert’s obligation to follow a specific method to accomplish the task. Not necessary. His commitment to the limits of the assigned mission to achieve its purpose. Objecting to the judgment for error in relying on an expert report in which the appointed expert did not adhere to the method followed to complete the mission. A matter of fact that is inadmissible.

Appeal No. 39 of 2023 Administrative, Session of November 8, 2023.

1. It is established that the tax obligation originates from the law, which determines the tax rate and the mechanism for its payment. Federal Law No. 7 of 2017, replaced by Federal Decree-Law No. 28 of 2022 regarding tax procedures, obligated every taxpayer to register for tax purposes. The law also obligated the preparation of a tax return for each tax period during the period of registration. If the taxpayer discovers that the declaration is incorrect, they must rectify it by submitting a voluntary disclosure to correct the aforementioned declaration. While the tax assessment or tax imposition decision issued based on the tax return establishes the legal status of the taxpayer, the basis of this assessment is the law itself that establishes the tax. Therefore, this assessment must be a correct application of the law, implementation of its provisions, and accordingly, if the law specifies a certain date for tax accrual, the right to collect it is from this date and not from the date of issuance of the assessment, considering that the latter merely reveals the right to the tax established by the law.
2. It is established - in the jurisprudence of this Court - that the penalty prescribed for merely submitting a voluntary disclosure differs from the penalty for late payment of tax differences, as each penalty has its scope of application and ruling that does not overlap with the other. Therefore, failure to pay the due tax on its due date specified by law requires the imposition of the late payment penalty prescribed by law, whether this tax is stated in the original declaration or the voluntary disclosure.
3. It is established - in the jurisprudence of this Court - that understanding the facts of the case, examining the evidence and documents submitted, including expert reports, comparing them, adopting them or part thereof, and rejecting the rest, falls within the authority of the Court of First Instance, provided that its deduction is reasonable and has a basis in the documents. It is not obligated to follow the litigants in their various statements and arguments and respond to them independently as long as the report contains a response that overrules these statements and arguments and is sufficient to support its judgment.
4. Whereas the appealed judgment, upholding the challenged judgment, ruled to reject the appellant’s claim to cancel the assessment of administrative penalties, correct the basic difference amount not paid and shown in the voluntary disclosure, cancel the proportional penalty of 50%, cancel the applied penalty of 2% once and 4% once and 1%, and return their value, and alternatively, exempt the appellant from the penalties. Whereas the appellant challenges the appealed judgment in the first ground for error in understanding the facts, which led to the error in applying the law by relying on the expert report that addressed a legal issue in violation of Article 2/11 of Schedule No. 1 attached to Cabinet Resolution No. 40 of 2017, which stipulated that the amount on which the penalty is imposed is the difference that was not paid. This is rejected because, according to the explicit text of Clause 11 of the aforementioned Schedule No. 1, the voluntary disclosure penalty is imposed for each tax period containing an error in the tax difference stated in the declaration. Consequently, a proportional penalty is imposed on the difference amount not paid to the authority due to the taxpayer’s error in obtaining a tax advantage. There were two tax periods from 1/1/2018 to 1/31/2018 and from 1/1/2019 to 1/31/2019. A proportional penalty was imposed on the tax difference, and late payment penalties were calculated on the unpaid amount revealed by the voluntary disclosures. Then the amount decreased in the other periods. The expert based this on the appellant submitting a tax return for January 2018 and January 2019 for a value less than what resulted in the accrual of the payable amount, which led to the appealed authority applying penalties according to the correct tax bases. Therefore, the appellant’s argument regarding the expert report, which the appealed judgment relied on, becomes a mere factual argument regarding the evidence relied upon by the judgment, which cannot be challenged before the Federal Supreme Court. Therefore, the objection is inadmissible.
5. It is established that the aforementioned Article 55 was mentioned in Chapter Eleven, titled “Input Tax Apportionment,” and considered the twelve-month period as the tax period for calculating input tax. However, the applicable law in this case is the general law on tax procedures, which is Federal Law No. 7 of 2017 Concerning Tax Procedures. Article 8 thereof stipulates that “Every taxpayer shall: A. Prepare a tax return for each tax period during the period of registration in accordance with the tax law…” Article 10 of the same law stipulates that “1. If the taxpayer finds that the tax return submitted by them to the authority or the tax assessment sent to them by the authority is incorrect, resulting in the calculation of the tax due according to the tax law being less than what it should be, they must, in this case, request the correction of this declaration by submitting a voluntary disclosure within the period specified by the Executive Regulations of this Law…” Article 8 of the Executive Regulations of this law issued by Cabinet Resolution No. 36 of 2017 specified this period as (twenty working days from the date the taxpayer becomes aware of their error in the tax return). The appellant submitted 12 voluntary disclosures, which makes its objection to the appealed judgment for violating the law by applying a repeated penalty for 12 voluntary disclosures, although the disclosure was submitted according to Article 55 of the Executive Regulations of the Value Added Tax Law issued by Cabinet Resolution No. 52 of 2017, which is a substantive law and does not relate to the voluntary disclosure, incorrect and inadmissible.
6. Whereas the appellant objects in the third ground to the violation of the law by applying a 50% penalty for the voluntary disclosure, this is rejected because Article 2/11 of the Annex to Cabinet Resolution No. 40 of 2017 Concerning Administrative Penalties Imposed for Violating Tax Laws in the State mandated a 50% penalty if the taxpayer submits a voluntary disclosure after being notified of the tax audit and the commencement of the authority’s audit procedures. Given that, and given that it is established that the appellant submitted the voluntary disclosures on March 28, 2019, after the request for information from the Federal Tax Authority, the 50% penalty must be applied. Therefore, the appellant’s objection in the third ground is incorrect and inadmissible.
7. It is established that the relationship between the Federal Tax Authority and the taxpayer is regulatory and not contractual. The tax forms, declarations, or assessments conducted by the authority have no bearing on determining the date legally specified for payment, as they are merely templates or forms designated for calculating and collecting the tax. The aforementioned Article 9 mandated, for the application of penalties, the taxpayer’s failure to pay the tax indicated as due in the submitted tax return or the tax assessment notified to them within the deadline specified in the tax law, not the determination of the date of its payment. It is established that the appellant did not pay the tax within the specified deadline and then submitted voluntary disclosures, which confirms their commission of the violation stated in Clause 9 of the aforementioned Schedule of Administrative Violations. Therefore, this objection - the appealed judgment’s violation of Article 9 of Schedule No. 1 of Cabinet Resolution No. 40 of 2017 by imposing 2% immediately once and 4% on the seventh day once and 1%, despite their inapplicability to it - is a factual argument that is inadmissible.
8. It is established, according to Article 46 of the Tax Procedures Law No. 7 of 2017, as amended by Law No. 28 of 2021, that “If the authority imposes or collects an administrative penalty from any person for violating the provisions of this Law or the tax law, the committee stipulated in the second paragraph of this Article may, based on a submission by the Director General, issue a decision approving the installment of the penalty amount or exempting it in whole or in part, or refunding it in whole or in part…” Cabinet Resolution No. 105 of 2021 was issued, and its second article stipulated that “The provisions of this Resolution shall apply to requests for installment, exemption, and refund of administrative penalties, in whole or in part, imposed on any person for violating the provisions of the Tax Procedures Law or the tax law.” It is established that the appellant did not resort to this committee with any request or to the Tax Disputes Resolution Committee for exemption or reduction of penalties before or during the consideration of the case of the appealed judgment or the appealed judgment. Therefore, the appellant’s objection regarding the necessity of applying Cabinet Resolution No. 49 of 2021 to its case regarding the installment or exemption of the penalty amount is incorrect and inadmissible.
9. It is established - in the jurisprudence of this Court - that there is no objection to the expert if they take a specific approach, as the expert is not obligated to perform their work in a specific manner. It is sufficient for them to carry out what they were assigned to in a way that achieves the purpose of their assignment, as long as they adhere to the limits of the assigned mission. There is no obligation on the expert to follow a specific method to complete the mission. If the court is satisfied with the expert report assigned in the case and adopts it, and those reasons are valid and have a basis in the documents and are sufficient to support the judgment’s ruling, this objection - for the appealed judgment’s reliance on the expert report despite its invalidity due to the non-execution of the important task assigned to it by the court - becomes a factual argument that is inadmissible to raise before the Federal Supreme Court.

Therefore, the appeal is rejected.