UAE supreme court decision 

Facts of the case

The Federal Supreme Court in the United Arab Emirates (UAE) has released a long-awaited decision regarding whether late payment penalties apply to Voluntary Disclosures submitted by taxpayers, in addition to the standard, statutory, voluntary disclosure penalties.

The Federal Supreme Court has taken a different view to that of the Tax Dispute Resolution Committee (TDRC), as well as the First and Second Instance Federal Courts, who all previously ruled in favor of the taxpayer. In essence, the Court has held that the Federal Tax Authority’s (FTA) policy of applying late payment penalties from the date of when the original tax return (with respect to which the Voluntary Disclosure of an error related) was due, is correct.      

The basis of this interpretation is that, per the law, a Voluntary Disclosure forms part of a tax return filing i.e. the Voluntary Disclosure is considered as an update of the original return instead of being regarded as a separate legal document.  This means that when additional tax arises due to the disclosure, per the law, penalties for this late paid tax are calculated based on when the original tax return was due to be filed with the FTA, not the tax period when the disclosure was made to the tax authority.  As the penalties are based on when the tax is deemed to be outstanding, this can lead to significant penalties in many cases.


The impact of this decision is considerable and wide-ranging.  It confirms the FTA’s policy of applying penalties retrospectively.  This could potentially lead to taxpayers incurring late payment penalties of up to 300% of the originally due tax if the errors disclosed relate to historical tax periods. It is likely the TDRC, and lower and middle courts will follow the findings in subsequent decisions.

There remain many aspects of the case yet to be considered. Notwithstanding these points, if you have submitted Voluntary Disclosures to the FTA, have any outstanding penalties with the tax authority or any live litigation regarding this issue, please contact one of our indirect tax expects who would be happy to discuss the matter with you.  

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