FTA Private Clarification Procedure and Mechanism

Background

In the United Arab Emirates (UAE), taxpayers can seek clarifications on the Corporate Tax Law (CT Law) through Article 59 of the Federal Decree Law No. 47 of 2022. This provision allows individuals and businesses to file applications with the Federal Tax Authority (FTA) for guidance on specific aspects of the law. To streamline this process, the FTA has recently issued Decisions No. 4 and 5 of 2024, which clarify the procedural steps for obtaining such clarifications.

Decision No. 4, which came into effect on 1 July 2024, specifies the circumstances under which taxpayers may request clarifications and the subsequent actions the FTA will undertake. 

Decision No. 5, set to take effect on 1 August 2024, establishes the conditions for refunding the fees associated with these applications. This initiative aims to enhance the efficiency of tax administration and provide comprehensive support for tax-related inquiries in the UAE.

Below, we summarize the key aspects of these decisions:
 

A.     Private Clarifications
 

A private clarification is a signed and stamped document issued by the FTA concerning specific tax technical matters for a particular taxpayer. A clarification issued in one case cannot be considered a precedent in another case, notwithstanding similarities in the facts.

I- Submission of clarification application

Decision No. 4 outlines a mechanism for submitting a private clarification request to the FTA. The taxpayer must file the application through the FTA web portal by completing a prescribed form, supported by the requisite information listed in Annexure A, along with the payment of the prescribed fee.

II- Procedure for issuing clarification

1. After receiving the application from the taxpayer along with all the necessary information, the FTA will set a timeline for issuing clarification. A new timeline will commence upon receipt of any additional information requested by the FTA.
2. The FTA will inform the applicant of the new timeframe if the clarification takes longer than expected.
3. If an application is initiated in the FTA’s system but not submitted by the taxpayer, the FTA will send an auto-generated reminder to complete it within the next 20 business days. The application will be closed if it remains unattended and is not submitted within 40 business days of its initiation on the web portal.

III- Matters on which clarifications may not be issued

The FTA may reject a request for private clarification when it considers it fair and reasonable to do so, including, but not limited to, the following situations:

• The matter has already been addressed in an existing FTA publication.
• The request is based on hypothetical scenarios and is akin to fishing inquiries.
• The request relates to matters previously clarified or that are the subject of a tax assessment by the FTA.
• The matter is the subject of an ongoing tax audit, assessment, or inspection by the FTA concerning the applicant taxpayer.
• The FTA suspects it is part of a scheme with the main objective of tax avoidance or evasion, including the application of Article 50 of the CT Law regarding the general anti-abuse rules or similar provisions in tax treaties.

This effectively means that an outcome on a request is not guaranteed. Decision No. 4 further provides that before issuing the clarification, the FTA shall consult with the Ministry of Finance (MoF) when the provisions of a law are unclear, given that the MoF is the competent authority to issue tax legislation and develop tax policies. Such consultation will, however, be undertaken while ensuring the applicant's anonymity.

IV- Validity of Clarification

The clarification is binding upon the FTA insofar as the facts and circumstances, as well as the provisions of the law on which it is based, do not change. The applicant taxpayer(s) can therefore rely on the clarification to ascertain their tax obligations or penalties. The clarification:

• Will remain applicable unless the FTA sets a validity period or withdraws a previously issued clarification.
• Will cease to have effect if the relevant legislation on which it is based is amended, or if the FTA issues a subsequent clarification that supersedes the previous one.

V- Refund of fees for private clarification requests

The Decision No. 5 of 2024 provides that fees for private clarifications can be fully or partially refunded to the applicant, contingent upon certain factors. The fees can be fully refunded if the applicant withdraws the request within two (2) business days from the date of submission, or if the FTA decides not to issue a clarification in the following cases:

• The applicant is not registered for Corporate Tax purposes, and the request for clarification is not about tax registration.
• The applicant is subject to a tax audit by the FTA at the time of submitting the request.
• The clarification request relates to procedures that should be applied as a result of a decision by the FTA.
• The request concerns a matter where the FTA is coordinating with the MoF regarding a change in underlying legislation.

VI- Information required to file the application

The applicant is required to provide the following information with the application:

• Name, address, and tax registration number (if applicable) of the applicant.
• Name and address of the tax agent or legal representative, if the request is submitted by either of them on behalf of the applicant.
• An estimate of the tax or penalty amount that may be affected as a result of the clarification.
• The subject matter of the clarification.
• Details of the facts and circumstances related to the request, along with copies of any documents, contracts, or other instruments related to the subject matter of the request.
• Specification of the relevant articles of the tax legislation applicable to the clarification request.
• Name and information of the authorized signatory; and
• Acknowledgment that:
  • All questions in the application form have been answered correctly.
  • All required information has been submitted.
  • Prior to submitting the request, all tax laws and regulations related to the subject of the request, as well as previous public clarifications issued by the Authority, have been reviewed. 
  • Any further information required by the Authority after its review of the request will be submitted.

B. Advance Pricing Agreements
 

• Article 59 of the UAE CT Law further provides that a person may make an application to the FTA in relation to the conclusion of an Advance Pricing Agreement (APA) with respect to a transaction or arrangement proposed or entered into.
• Decision No. 4 states that a detailed procedure will be announced in the fourth quarter of 2024 for submission of applications in this regard and issuance of APAs

Key Takeaways
 

The Decision No. 4 was much awaited. Its implementation has now made it possible for taxpayers to reach out to FTA directly for certainty of their tax position on any matter where the CT Law is either not clear or where its application is subject to varied interpretations. This will mitigate against future tax disputes and will enhance the efficiency of tax administration by means of structured guidance and support for taxpayers.