Resolving Tax Consultation Disputes Effectively
A taxpayer who lets the reconsideration window pass usually never gets the underlying argument heard at all.
Only one kind of tax dispute can be lost by doing nothing. An assessment or penalty from the Federal Tax Authority runs through a fixed sequence: reconsideration by the Authority, objection to the tax disputes resolution committee, and only then the federal courts. Contract arguments triggered by tax, and claims against the adviser who prepared a return, sit outside that sequence entirely.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
A dispute with the Federal Tax Authority behaves differently from almost anything else a UAE business argues about, and the difference is the clock. An assessment or an administrative penalty has to be challenged through a statutory sequence that begins with the Authority itself, within a period fixed by the legislation rather than by the parties. Arguments about tax that arise between contracting parties, or between a business and the adviser who prepared its return, carry no such feature; they are contract and professional negligence matters, and they are dealt with later in this article. The reason for separating them at the outset is entirely practical, because only the statutory route can be lost by doing nothing.
A dispute with the Federal Tax Authority is not litigation, at least not at first
When the Authority issues an assessment or an administrative penalty that a taxpayer disagrees with, the first step is not a court. It is a reconsideration request to the Authority, asking it to review its own decision, supported by the documents and reasoning that were missing or misunderstood the first time. The request must be made within the period the legislation specifies, and the legislation attaches conditions to each stage of the process, including as to payment.
If reconsideration does not resolve matters, the next stage is an objection to the tax disputes resolution committee, and only after that does the matter reach the federal courts. The sequence is mandatory. A taxpayer who lets the reconsideration window pass and then tries to start at the court stage generally finds the door closed, and the merits of the underlying argument never get heard.
What wins at the reconsideration stage is unglamorous: contracts, invoices, import documentation, the accounting treatment and a clear explanation of why the return was prepared as it was. What loses is a submission that argues fairness without producing the records.
Related: Our tax consultation services cover reconsideration requests, objections and the preparation behind them.
Which tax, and which law
The disputes now arriving fall into two families. VAT, introduced by Federal Decree-Law No. 8 of 2017 and amended by Federal Decree-Law No. 18 of 2022, applies at 5% and produces disputes about place of supply, zero-rating, exemption and input tax recovery. Corporate tax, introduced by Federal Decree-Law No. 47 of 2022 and applying to financial years starting on or after 1 June 2023, charges 0% on taxable income up to AED 375,000 and 9% above that, and produces disputes about deductibility, related-party pricing, grouping and the treatment of free zone entities.
Two beliefs cause a disproportionate share of problems. The first is that the UAE is a tax-free jurisdiction; it has not been for some years, and businesses whose planning still rests on that premise are the ones receiving assessments. The second is that establishment in a free zone puts a business outside corporate tax automatically. It does not. The legislation provides a specific treatment for free zone persons that depends on conditions being satisfied, and whether a particular business satisfies them is a question of fact the Authority is entitled to test against the actual operations.
One obligation has genuinely gone. The Economic Substance Regulations were cancelled for financial years ending after 31 December 2022 by Cabinet Decision No. 98 of 2024. Obligations remain only for the FY2019 to FY2022 period, so historic filings and open assessments still matter, but there is no continuing annual notification to worry about.
What the DIFC and ADGM courts can and cannot do here
The DIFC and the Abu Dhabi Global Market are common-law jurisdictions with their own courts, and they are the right forum for a great many commercial matters. They are not an appeal route against a federal tax assessment. Federal tax is administered by a federal authority under federal legislation, and challenges to its decisions follow the federal process described above regardless of where the taxpayer is incorporated. A DIFC company disputing a VAT penalty is in the same queue as everyone else.
Where the financial centres matter is on the contractual side: a share purchase agreement between DIFC entities containing a tax indemnity, or a services agreement whose price is disputed once VAT is added, will be decided by the forum the parties chose.
Tax arguments between contracting parties
A significant number of "tax disputes" are really contract disputes triggered by tax. The recurring examples are worth naming, because they are all preventable at drafting.
- A price that is silent on VAT. Whether the stated figure is inclusive or exclusive becomes a live argument the moment the supplier issues an invoice with 5% on top.
- Tax indemnities in acquisition agreements. Who bears an assessment for a pre-completion period, what notice the buyer must give, and who controls the response to the Authority.
- Related-party pricing of intra-group charges. Management fees, interest on shareholder loans and — a frequent one — royalties for the use of group brands and technology, where the tax position and the licence terms have to be consistent. Where those licences are informal or undocumented, the fix is as much a matter for intellectual property counsel as for the tax adviser.
These are resolved as ordinary commercial disputes, in the courts or by arbitration under Federal Law No. 6 of 2018 as amended in 2023, depending on the clause. Note the limit: parties can arbitrate between themselves who bears a tax, but they cannot arbitrate the Authority's assessment. Our arbitration practice deals with the first; the statutory route deals with the second.
Claims against a tax adviser
Claims against tax advisers in the UAE follow a familiar pattern: a position taken on a return that the Authority later rejects, a registration deadline missed, a structure recommended without regard to how the business actually operates, or advice given before a change in the law and relied on afterwards. None of them is decided by asking whether the advice turned out to be right. What is asked is what the adviser was retained to do, and whether the work matched it.
That makes the engagement letter the document the whole argument runs through. It should name the taxes and the periods it covers, say whether the adviser is filing or only advising, set out what information the client has to supply and when, and state plainly what has been left outside the retainer — intra-group pricing, for instance, or the treatment of an overseas branch. It should also say who deals with the Authority if a query later arrives about a period the adviser worked on, since that is the moment at which client and adviser most often discover they had different understandings. Where advice was given on an unsettled point, the file should show that the client was told it was unsettled, and the correspondence should carry that qualification rather than the conclusion alone.
Reducing the odds
Register when the thresholds are met rather than when the penalty arrives. Keep the records that support the positions taken, in a form someone else can follow. Review advice given before a legislative change instead of assuming it survived. Put the tax treatment in the contract rather than leaving it to be argued later. And when a query does arrive from the Authority, answer it properly the first time — the reconsideration stage is the cheapest point at which a tax dispute is ever resolved.
Related Services: Explore our tax advisory and ongoing legal consultation and retainer services for businesses in Dubai and across the UAE.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
Nour Attorneys Team
