The Federal Tax Administration (FTA) has clarified the excise duties relief available for defective or missing products and the process for the destruction of excise goods in a designated area, as follows:
Wastage of excisable goods already released for consumption
The Executive Regulations of the Federal Decree-Law No. 7 of 2017 on Excise Tax (the Executive Regulation) do not provide the possibility to recover the excise tax on goods that cannot be sold or otherwise used during business after their release to consumption.
Wastage of excisable goods within a designated zone
Excise goods will be deemed to leave the designated excise tax area and be released for free circulation where there is a shortage or lack of quality and for this to occur:
- the warehouse keeper responsible for the excise goods notifies the FTA within 30 days of discovering the deficiency in the stock or shortage in quantity; and
- it appears that the shortage of, or deficiency in, the excise goods is due to a legitimate cause accepted by the FTA.
FTA considers "legitimate cause" the following cases:
- force majeure: circumstances beyond the warehouse keeper or taxable person's control, which lead to the excisable goods being damaged or destroyed.
- natural wastage and shortage: unintentional deterioration, shortage, contamination or otherwise unfit for consumption for any natural reason; and
- waste or shortage during production: an allowable threshold of excise goods that become unusable, or a shortage that occurs as a result of the manufacturing process to produce another excise good.
The destruction of the goods must not occur until permission has been obtained from the FTA that the goods may be destroyed, and FTA may wish to inspect the goods prior to granting its approval to apply the excise tax relief.
Excise tax relief process
The taxpayer must submit to the FTA the loss and damage declaration (Declaration EX203B), which must be approved by the warehouse keeper, within 30 days of discovering the deficiency or shortage in the goods. The declaration submitted to the FTA must contain the following information:
- the registration number (TRN) of the owner of the goods;
- the registration number of the warehouse keeper;
- information on the intended place of destruction (if any) of the goods (e.g. at a specified disposal facility);
- the reference number of the designated area in which the goods are held;
- the date of entry of the goods into the designated area;
- the date on which the defect, damage or shortage of goods was discovered;
- the reason for the notification (i.e. the cause that led to the shortage or deficiency of the goods) and the reason for the request for approval of destruction, if applicable;
- the supporting documents validating the reason for the notification indicated above;
- the description of the type of goods to be destroyed, including the item code; and
- the value of the excise tax that would have been due on these goods.
The taxpayer, as well as the warehouse keeper, must provide the documents proving the legitimate cause for the loss or damage. The FTA will assess the declaration submitted and respond to the request within 30 days from receipt of the declaration.
The FTA will then respond to the request by either:
- accepting the reason for the insufficiency or deficiency of the excisable goods and granting a total or partial exemption from excise tax; or
- rejecting the application for exemption from excise tax if the reason for the deficiency or deficiency of the excisable goods is an illegitimate reason, or if the application is not made within 30 days of the date of discovery of the deficiency or deficiency of the excisable goods.
For requests related to goods that are intended to be destroyed or disposed of, the FTA may notify the warehouse keeper of the intention to inspect the goods or to allow the goods to be destroyed or disposed of without the need of inspection. In both cases, the taxpayer will be required to provide evidence that the goods have been destroyed or disposed of after completing the destruction process in order to grant him relief from excise tax.
The Excise Tax Public Clarification EXTP007 was published on the FTA's official website on 21 June 2022.