Sanctions and information exchange in the Economic Substance Regulation – News
The FTA can impose the maximum penalty within six years from the date the violation was committed, but the time limit to impose the penalty for the offense of providing inaccurate information is a maximum of 12 months from from the date the violation was brought to the attention of the FTA.
There are many regulatory authorities such as central bank, insurance authorities, security and commodity authorities, ministry of economy, free zone authorities, etc. who have been tasked with regulating the implementation of Economic Substances Regulations (ESR) in the state.
As noted in our previous article, each licensee who derives relevant income from a relevant activity must submit a notification within six months of the end of the relevant financial year, satisfy the economic substance test and submit the report within the twelve months following the end of the financial year concerned. financial year.
Where the licensee is engaged in relevant activities but has not earned any income during the financial year, he is required to submit the notification only, and there is no requirement for him to satisfy the economic substance test and submit the report. We have pointed out that the exempt licensee is required to submit the notification only, and if he does not submit the notification, he will be treated as a normal licensee and all the provisions of the normal licensee will apply to him.
The requirement to pass the economic substance test is to comply with (i) functional test, (ii) management test and (iii) suitability test. The suitability test requires that the licensee or exempt licensee or third party to whom the work has been outsourced must have (i) adequate employees, (ii) adequate operating expenses, and (iii) adequate physical assets in the state.
There are many regulatory authorities such as central bank, insurance authorities, security and commodity authorities, ministry of economy, free zone authorities, etc. who have been charged with regulating the implementation of Economic Substances Regulations (ESRs) in the state. Each regulatory authority collects the notification, report and relevant supporting documents from the operator and exempt operator. The authority examines the information to ensure the completeness and accuracy of the documents provided to it. The authority exercises the powers of execution of the decisions of other authorities such as the competent authority [the Ministry of Finance (MoF) has been named as competent authority] and the national evaluation authority [Federal Tax Authority (FTA) is the national assessing authority]. The regulatory authority collects the information from the licensee or exempt licensee and transmits it to the AFC within thirty working days of its receipt. The same deadline applies if the holder or exempt holder fails to submit the notification, ESR report and other documents.
The AFC, as the National Assessment Authority, undertakes an assessment to determine whether the Licensee and Exempt Licensee have passed the ESR test and the AFC may conduct such assessment no later than six years from the end of the exercises to which the test relates. The stipulated six-year period will not apply if the Holder or the Exempt Holder has committed fraud, misrepresentation or gross negligence. Where the licensee and exempt licensee have failed to meet the ESR test requirement, the FTA will impose penalties and provide this information to the Ministry of Finance. The AFC hears and adjudicates appeals. The AFC exercises the powers and functions necessary to implement the decision of the Ministry of Finance. The licensee or exempt licensee who is involved in the high-risk intellectual property activity, FTA will collect and provide information about such licensee or exempt licensee to the Ministry of Finance.
Upon receipt of information about the licensee or exempt licensee who failed the ESR test, or about the licensee or exempt licensee who is involved in the high-risk intellectual property activity, the Ministry of Finance transmits the information to the foreign competent authority, the ultimate parent company and the ultimate beneficial owner of the licensee or exempt licensee.
If the licensee or exempt licensee fails to comply with the notification requirements, a fine of Dhs 20,000 is applicable. When the licensee or exempted licensee has not passed the ESR test or does not submit an ESR report and other documents, an administrative penalty of Dhs 50,000 will be imposed for the first year, and the penalty for the immediately following year would be 400 Dh. ,000.
If the Licensee or Exempt Licensee intentionally provides inaccurate information or fails to inform when he or she becomes aware of such inaccurate information, a penalty of Dhs 50,000 will be applicable by the FTA. In the event of persistent non-compliance, the national evaluation authority may suspend or revoke or not renew the license.
The FTA can impose the maximum penalty within six years from the date the violation was committed, but the time limit to impose the penalty for the offense of providing inaccurate information is a maximum of 12 months from from the date the violation was brought to the attention of the FTA. . When the holder or the exempted holder has committed fraud and the national evaluating authority does not impose sanctions within the time limit, the above time limit would not apply.
Mahar Afzal is Managing Partner at Kress Cooper Management Consultants. The above is not an official but personal opinion of the author. For any questions/clarifications, please write to him at [email protected]