Tax evasion - what is it?

Tax evasion is the use of unethical methods to lower the amount of tax owed, avoid paying it, or receive a refund of a tax that the taxpayer is not entitled to receive under any tax legislation.

When should penalties for tax evasion be applied?

Penalties for tax evasion must be applied when any of the following occurs: a taxpayer who willfully avoids paying any due taxes or administrative fines a taxpayer who purposefully undervalues their company's actual worth or neglects to combine their linked enterprises in order to stay below the registration requirement.

• a person who, without being registered, bills and collects money from clients under the pretext that it is tax.

• a person who knowingly gives the authority misleading information, data, and erroneous documents.

• an individual who willfully hides or destroys records or other materials that they are supposed to maintain and give to the authority.

• a person who knowingly steals, mishandles, or destroys records or other items in the hands of the authority.

• a person who obstructs or challenges an employee of the authority in the performance of their duties.

• a person who knowingly lowers the amount of tax that must be paid by evading taxes or planning to do so.

 

If it is established that a person was actively involved in tax evasion or played a significant role in it, the appropriate court may impose penalties for tax evasion. According to Federal Law (No) 7 of 2017 on Tax Procedures or any other tax law, anyone who is found to have been directly involved in or assisting in tax evasion is jointly and severally liable with the person he or she has helped to pay the applicable tax and administrative penalties. Penalties for tax evasion must include either a prison term or a fine that is no more than five times the amount of tax that was avoided.

Case brief

The UAE Federal Supreme Court issued its ruling on the first criminal tax evasion case in May 2021, ordering payment of five times the amount of the tax that was avoided, or nearly 4.2 Dirhams. The Federal Primary Court ordered the taxpayer to pay five times the amount of tax that was evaded at a hearing in October 2020. To confirm the amount of the tax that was evaded, the Primary Court relied on an expert report. The taxpayer appealed this punishment, and the Federal Appeals Court ruled in March 2021 that it would accept the appeal in form but would reject the taxpayer's arguments and uphold the Primary Court judgment. The taxpayer then appealed the Federal Appeals Court decision to the Federal Supreme Court. The punishment was upheld by the Federal Supreme Court, making it the first known Supreme Court decision involving tax evasion.

The Supreme Court's previous speech on tax evasion

In judgment number 227/2020 relating to voluntary disclosures, the Federal Supreme Court addressed tax evasion obiter dicta (in passing), which was the first-time tax evasion was addressed by a court during civil proceedings in October 2020. The Federal Supreme Court adopted the following stance: If someone discovers an error, they must notify it and remedy it (within twenty business days) or they risk being held guilty of tax evasion. In such situations seeking legal advice from an experienced tax lawyer is a great choice. Therefore, the aforementioned had to, in all cases, correct the errors in his declaration for the purpose of maintaining the dues to the State; otherwise, he would have faced the tax evasion offence, which requires incarceration. "That is because the voluntary disclosure along with tax differences it contained is not only a guarantee for the State Treasury but also a means of rectifying the taxpayer's error as such in the declaration - or the result of the tax assessment - so the aforementioned had to, in

Tax evasion in law

Tax evasion is defined as the "...use of illegal means, resulting in the decrease of the amount of the due tax, non-payment thereof, or a refund of a tax that the Person did not have the right to have repaid..." under Article 1 of both the Tax Procedures Law and the Excise Tax Law. Tax evasion is punishable by up to five times the amount of tax that was evaded in fines and/or imprisonment, according to Article 26 of the Tax Procedures Law.

Federal Tax Authority powers

The Director-General and tax auditors chose by the Minister of Justice are given the authority to act as judicial officials for tax offences under Article 50 of the Tax Procedures Law. Judicial officials have the authority to investigate crimes, look for their perpetrators, and gather the information and evidence required for an investigation and an indictment under Article 30 of the Criminal Procedures Law. Judges have the authority to order the arrest of an accused person who is present and against whom there is sufficient proof that they committed a crime under Article 45 of the Criminal Procedures Law.

 

Publication: 22/07/2022 07:27