Statutory representatives liable for a corporation's tax arrears?
In a recent judgment (10 Afs 4/2024-38 of 18 June 2024), the Supreme Administrative Court (SAC) dealt with a case in which the tax authority turned to the statutory representative of a corporation on the grounds of his liability. Although the Tax Procedure Code has provided this option for many years, the financial administration has not used this concept so far. The SAC has now confirmed this procedure for the first time and formulated the basic rules for its application.
Subject-matter of the case
Together with other persons, a company’s statutory representative had been convicted of the crime of tax evasion committed by extracting undue advantages from the company in which he performed his office. The company was subsequently dissolved with liquidation, and the tax authority was unable to satisfy its tax claim. It therefore turned to the statutory representative and demanded payment of the tax based on his liability pursuant to the Tax Procedure Code.
Liability for statute-barred claims
The court first confirmed that the statutory representative as a guarantor may indeed be obliged to pay the company's tax debts under the Tax Procedure Code. However, the Supreme Administrative Court rejected the procedure of the tax authorities which assumed that liability for unpaid tax could be invoked even if a company's claim for damages against its statutory representative had already been statute-barred.
A statutory representative’s liability for unpaid tax must always be backed up by the law. If the statutory representative’s liability under such a law (in this case the Civil Code) has already been statute-barred, no liability may arise under the Tax Procedure Code. However, the statutory representative must always explicitly plead the limitation of their liability. The court also pointed out that in exceptional cases, pleading the limitation may be an abuse of law or contrary to good morals. In such cases, the tax authority could very well proceed to recover even a statute-barred claim against the statutory representative.
Liability for claims with the lapse period expired
For liability to arise, it is not necessary to have committed a criminal offence; any breach of managerial duties, in particular a breach of due care, suffices. If a statutory representative causes the company to incur a tax debt by the above, they will not be able to avoid their obligation to pay the debt even if the company is dissolved. Where the extraction of an undue tax advantage is also a criminal offence, liability arises even if the tax assessment period has expired. In such a situation, the tax can be assessed until the end of the second year following the final conviction. The expiry of the basic period for tax assessment is then disregarded, and it is possible to exceed even the maximum period of 10 years.
Final recommendations
Statutory representatives cannot be relieved of their liability by delegating some of their duties to third parties, such as entrusting an accounting firm with bookkeeping, as here too, it will be examined whether the statutory representatives chose the firm with due care and whether any deficiencies in the accounting could have been prevented.