Can the FTA trigger criminal tax proceedings before the TDRC, reconsideration and assessment stage?

A tension in the structure of the Law

At first glance, the legislation points in two directions. On the one hand, the Tax Procedures Law clearly separates the criminal provisions from the administrative dispute provisions. The rules on tax crimes, criminal action, and reconciliation appear in Articles 25 to 27, while the assessment-review, reconsideration, objection, and challenge framework is dealt with separately afterward.

On the other hand, the same legislation expressly preserves a pre-criminal reconciliation mechanism. That creates an important interpretive tension: even if the criminal route is legally independent from reconsideration and the TDRC process, can it be used in a way that deprives the taxpayer of a realistic opportunity to reconcile before prosecution begins?

Basic rule

The starting point is Article 26(1). It identifies the legal trigger for criminal proceedings: a criminal action for the crimes set out in the Decree-Law or the Tax Law may be instituted only on the basis of a written application (request) from the FTA’s Director General.

That matters because the article does not say that the FTA must first wait for a tax assessment to become final, must first wait for reconsideration to conclude, or must first wait for the TDRC process to finish. As a matter of text, the law therefore does not appear to make exhaustion of the administrative remedies a condition precedent to criminal referral.

Why the analysis does not end there

If the analysis stopped there, the conclusion would be straightforward: yes, the FTA may in principle seek criminal institution before reconsideration or the TDRC stage is exhausted, and perhaps even before a formal tax assessment is issued.

But that is only half of the story. The other half lies in Article 27(1) of the Law and Articles 23(1) and 24(1) of the Executive Regulation, which expressly deal with reconciliation before criminal action is instituted. Those provisions are not peripheral. They show that the legislature intended a genuine stage before criminal institution during which the matter may still be resolved through reconciliation.

Potential for favorable interpretation

This is where the taxpayer’s strongest argument emerges. The law does not merely empower the FTA to reconcile.[1] It also contemplates that the person concerned may apply for reconciliation before criminal action is initiated.[2]

The Executive Regulation states that the conciliation application is submitted to the FTA before criminal action is initiated and must include an undertaking to pay the full amounts due as consideration for the conciliation. That wording matters enormously. A person cannot meaningfully apply for reconciliation, or undertake to pay the relevant amounts, unless the person knows that the FTA is treating the matter as a criminal tax offence, understands the nature of the alleged offence, and knows the amount required to settle it.

[1] Article 27(1) of the Law and Articles 23(1) of the Executive Regulation.

[2] Article 24(1) of the Executive Regulation

Effective exercise of the right to reconciliation

From that, a broader principle can be drawn. A statutory right must be practically exercisable, not merely theoretical. If the law gives the taxpayer a chance to reconcile before criminal proceedings are instituted, the FTA should not be permitted to defeat that right by moving straight to criminal referral without first giving the taxpayer enough information to exercise it.

Otherwise, the right to reconciliation exists on paper but disappears in practice. This is not stated in those exact words in the statute. So, it is best framed as an interpretive argument rather than a black-letter rule. But it is a strong argument grounded in the structure and purpose of the reconciliation provisions.

Why notification matters

That argument becomes stronger when one looks at the notification rules in the Executive Regulation. The Regulation requires a tax assessment to include adequate information enabling the value of the due tax to be determined, including a tax summary, adjustments, the grounds on which the assessment is based, and the net amount payable or refundable.[1] The Regulation also requires an administrative fine assessment to identify the violation and the total fines payable.[2] These notification rules are not just formalities. They provide the information needed for a taxpayer to understand what is being claimed and why. Where reconciliation depends on payment of tax, fines, or a specified amount linked to the offence, those notification requirements become functionally connected to the reconciliation right.

[1] Article 20(1).

[2] Article 21(1)(c).

Stronger argument in tax evasion cases

For tax-evasion offences in particular, that connection is hard to ignore. Pre-criminal reconciliation for tax evasion is tied to payment of the full tax payable and administrative fines, while later stages may involve formulas linked to the tax amount evaded.

If the taxpayer has not been notified of the tax computation, the grounds for it, and the legal scenario being alleged, the taxpayer may reasonably argue that there was no real opportunity to reconcile before prosecution. A reconciliation right that depends on payment of quantified amounts cannot be meaningful if those amounts have not been properly communicated.

Should the criminal characterization be included in the notice?

The taxpayer can take the argument further still. It is not enough merely to know that some tax is being claimed. A tax assessment by itself does not necessarily tell the taxpayer whether the FTA considers the matter to be ordinary non-compliance, negligence, a technical disagreement, or criminal tax evasion under Article 25.

Yet reconciliation under Article 27 is tied specifically to criminal-tax scenarios. For that reason, the taxpayer has a substantial argument that prior notice must do more than quantify tax. It must also identify, at least in substance, the criminal characterization being relied upon: whether the FTA is invoking tax evasion, deliberate failure to pay administrative fines, false information, concealment of documents, or another offence scenario under Article 25.

This line of reasoning is reinforced by the Executive Regulation’s treatment of reconciliation once the criminal process is already underway. The Regulation provides that where conciliation is made through the Public Prosecution, the conciliation report approved by the Federal Attorney General must include a description of the charges, the date and place of occurrence, the applicable legal articles, and the tax and fine amounts payable.[1]

That provision applies at the prosecution stage, not necessarily at the earlier FTA stage. Even so, it is highly instructive. It shows that, within the statutory design, reconciliation is expected to operate against a sufficiently clear statement of the offence, the legal basis, and the amounts involved. That supports the inference that meaningful notice is also necessary before criminal institution, when the taxpayer is still supposed to have a chance to reconcile with the FTA itself.

[1] Article 24(5).

The better defence position

Accordingly, the best defence position is more nuanced than a simple claim that “criminal referral is impossible before reconsideration”. The Law does not expressly say that. A court or authority could therefore accept that early referral is legally possible in principle.

The stronger submission is that the FTA’s power under Article 26(1) must be exercised consistently with Article 27(1) and the Executive Regulation’s conciliation framework. If the FTA refers a case for criminal action without first giving the taxpayer enough information to know that the matter has been classified as a tax offence, what offence is alleged, what conduct is said to constitute it, and what amounts must be paid to reconcile, then the referral can be challenged as premature, unfair, and inconsistent with the legislative purpose of preserving a pre-criminal reconciliation opportunity.

Stronger cases and weaker cases

This argument is strongest in cases based on Article 25(2), where the alleged offence turns on payable tax, tax due, or tax evaded. In that setting, the prosecution theory inherently depends on a tax computation, and the reconciliation mechanism depends on the taxpayer knowing what must be paid.

The absence of a properly articulated assessment or equivalent notification therefore weakens not only the taxpayer’s ability to reconcile, but also the evidentiary clarity of the offence itself. The argument is somewhat weaker for certain Article 25(4) offences, such as false statements or concealment of documents, because those may sometimes be framed without a finalized tax assessment. Even there, however, the taxpayer can still say that notice must identify the factual acts being relied upon and whether the FTA contends that those acts caused, facilitated, or concealed tax evasion, since that affects the reconciliation consequences.

Practical Conclusion

The practical conclusion, then, is this. The Tax Procedures Law does not clearly require the FTA to wait for reconsideration or the TDRC before seeking criminal institution. Nor does it expressly require that a formal tax assessment always be issued first. Yet the same legal framework gives the taxpayer a pre-criminal right to seek reconciliation. That right must be made effective. For it to be effective, the taxpayer should be notified in a way that enables an informed decision. The taxpayer should:

• know that the FTA is alleging a criminal tax offence,
• understand the legal classification and factual scenario, and
• know the tax and penalty amounts relevant to reconciliation.

Without that, the statutory reconciliation right risks becoming illusory, and an early criminal referral becomes open to challenge as procedurally premature.

Disclaimer

Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. See the full press release here.

You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA. The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.