Private Clarifications in the UAE

Recently, the FTA has issued a guide on Private Clarifications. The purpose of this document is to provide guidance on the nature of private clarifications and the process to apply for a clarification. This guide will help to understand the nature of a clarification, who is eligible to apply for a clarification, the instances where a clarification will not be provided or rejected, and the clarification process. 

What are Private Clarifications?

Private clarifications (PCs) are clarifications issued by the FTA in the form of a document that is stamped and signed by the Director General or his delegate/representative, in relation to specific tax technical matters. Globally, such clarifications are known as advance rulings and are a very popular mechanism of alternate dispute resolution. 

The key features of PCs are enumerated below:

• Issued to a specific taxpayer (applicant), based on specific background and facts provided by the taxpayer (not verified by the FTA); 

• Set out the relevant tax legislation and application thereof; 
  
  
• Cannot be used by persons other than the applicant; and 
  
  
• The FTA is administratively bound to follow the position stated in the PC.  

PCs issued may be considered as void ab initio in some cases if there is a change in facts or in law. A change in facts would encompass an error, fraud, misrepresentation of facts by the taxpayer. Likewise, a change in law refers to an amendment in or termination of the legislative provisions applicable to the PC.  

Eligible Persons

The guide enlists the persons eligible to make an application for PC, viz. 

• The taxpayer or its authorised signatory; 
  
  
• The tax agent; 
  
  
• The legal representative or the representative member of the tax group. 

A taxpayer cannot seek clarifications on a matter concerning another taxpayer. In exceptional cases, more than one person may submit a joint clarification request, e.g. where they are parties to the same transaction and the factual background information is agreed between them.

Eligible Matters

The FTA admits matters for PC only if they are eligible matters and rejects the other matters. The table below helps to understand such matters:

Further, the FTA also has a right to reject applications by providing reasons; for instance, if they are incomplete i.e., taxpayer’s representative does not provide the proof of authorization, etc.

Procedural Aspects

An application is only accepted via the EmaraTax portal on payment of a fee ranging from AED 1,500 to AED 2,250 per application. It is important for CFOs and tax advisors to adhere to the procedures outlined in the guide, else the application may be rejected.  

If the application is not rejected, the FTA must issue a PC within a specific time limit (within 60 days on related to corporate tax and within 50 business on matters related to indirect taxes). The timelines may be extended further as specified in the guide. 

Conclusion 

The facility for applying an advance ruling or a private clarification (as called in the UAE) is an important method of alternate dispute resolution worldwide. Taxpayers and their advisors must take advantage of this facility and approach the tax administration whenever required. Such clarifications help to achieve tax certainty on matters covered in the clarification and reduce tax litigation. 

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