UAE- Tax Evasion Cases

UAE- Tax Evasion Cases: Money Laundering and Tax Evasion Crimes – establishment of New court

On 10 November 2020, His Highness Sheikh Mansour bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs, and Chairman of the Abu Dhabi Judicial Department issued Resolution No. 35 of 2020 (the “Resolution”).

Article 1 of the Resolution states that: “A Court is to be established in the city of Abu Dhabi and shall be dedicated to hearing Money Laundering and Tax Evasion Crimes. The Court shall be under the Abu Dhabi Criminal Court.”

The Federal Supreme Court in a recent civil proceeding related to voluntary disclosures, on October 14, 2020 states that where a person discovers an error, they must disclose and correct the error (within twenty weekdays) — or be found to have committed tax evasion.

Tax evasion is defined in the law as:

“The use of illegal means resulting in the reduction of the amount of the due tax, non-payment thereof, or a refund of a tax that a person does not have the right to have refunded under any tax law.”

The criminal penalty for tax evasion is a prison sentence and/or a monetary penalty up to five times the amount of evaded tax. Though the tax legislation does not limit the prison sentence term, Article 69 of the Penal Code states that:

“The minimum period of imprisonment may not be less than a month nor exceed three years, unless the law provides otherwise.”

It is to be noted in this context that, where the burden of proving the accuracy of the tax return falls upon the taxable person, in tax evasion issues, the burden of proving tax evasion falls on the Federal Tax Authority. –

We should be aware that ignorance of the law is not to be considered an excuse (Ignorantia juris non excusat) and hence knowledge and application of the tax legislation is expected of all taxpayers, failure of which may lead to finding a tax evasion offense.

As a general matter, a tax evasion accusation would be levied against the taxpayer (as the original debtor) and against the legal representative of the taxpayer company (i.e. the listed authorized signatory on the commercial registration of the company, or the listed representative with the FTA).

This is extremely important for employees of the taxpayer and external advisors to the taxpayer alike to take note of, as any could be deemed an accomplice to a tax evasion crime.

For example, if the finance director of a company discovers an error but does not take action on that error within the requisite time period to avoid tax penalties, the company (taxpayer) may be found to have committed tax evasion, and the finance director to be a direct accomplice to that action.

Also, if a tax agent advises their client not to disclose a particular tax error to avoid facing tax penalties, the tax agent could be found to be an accomplice by causation.

According to Article 26 of the Tax Procedures Law “The competent court shall impose tax evasion penalties against any person who is proven to have been directly involved or instrumental in tax evasion/and any person who is proven to have been directly involved or instrumental in tax evasion shall be jointly and severally liable with the person whom he has assisted, to pay the payable tax and administrative penalties pursuant to this law or any other tax law.”

There are two types of criminal complicity:

Direct complicity:

Direct complicity is defined in the Penal Code as one of three categories:

A person who perpetrates the crime with another person.

A person who participates in its perpetration when it consists of several acts and deliberately commits one of its constituent acts.

If a person sub-serves another person by any means to execute the criminal act and the latter is not criminally responsible for this act for any reason whatsoever.

Complicity by causation:

Complicity by causation is defined in the Penal Code under three categories:

If the person instigates to commit a crime that was perpetrated as a result of this instigation.

If the person conspires with others to perpetrate a crime that occurred as a result of this conspiracy.

If the person gives the doer a weapon, tools or anything else used in the perpetration of the crime of which he had knowledge; or willfully assists the perpetrator, by any other means, in the preparatory acts or those facilitating or completing the perpetration of the crime.

Powers of Federal Tax Authority (FTA)

Article 50 of the Tax Procedures Law grants the Director-General, and tax auditors, the capacity of judicial officers for tax violations.

Under Article 30 of the Criminal Procedures Law, judicial officers have the power to inquire about crimes, search for their perpetrators and collect the necessary information and evidence for investigation and indictment.

Article 45 of the Criminal Procedures Law grants judicial officers the power to order the arrest of the accused, present and against whom there is enough evidence that they committed a crime.

Pursuant to Article 17 of the Tax Procedures Law, FTA’s Director General can initiate criminal case via an application to the respective public prosecution.

Ultimately, the Director-General and certain FTA tax auditors can act as judicial officers with the powers to search, investigation, question, and indict a person for tax evasion. Subsequently, the complaint is submitted to the public prosecution by the Director-General in order for the new Tax Evasion Court to adjudicate the case.