The liability of managers and procurators for taxes and social insurances of the liable company includes also the interests. That is what the Supreme Administrative Court (“SAC”) in its Interpretative decision dated 29.03.2021.
The interpretative decision concerns the scope of the liability under the Tax-Insurance Procedural Code (“TIPC”) of the following individuals (“third liable individuals”):
Manager, member of a managing board, procurator, commercial representative, commercial agent, who
- Has hidden facts and circumstances which he is legally obligated to disclose to the revenue authority or the public enforcement agent;
The above individuals as well as the major shareholders who:
- Have made payments in-kind or in money from the property of the company-main debtor which payments represent hidden profit or dividend distribution;
- Haveexpropriated property of the company-main debtor for free or at prices which are considerably lower than the market ones;
- Have encumbered the property of the company-main debtor for securing a third party’s debt and the property is sold in favor of the third party.
As a result of the above, the liabilities of the company-main debtor for taxes and insurances could not be paid.
The question reviewed by the SAC is whether the liability of third liable individuals also includes the interest (apart the liabilities for taxes and social insurance contributions themselves).
The contradictory court practice so far
1.1 According to one group of court decisions, the liability of third liable individuals under the TIPC does not include the established interest liability of the company. This liability is a special case of liability for third party’s liabilities and should be interpreted strictly. The liabilities for interests are separate ones and are due on different grounds under the TIPC.
1.2 According to the other group of court decisions, the liability of the third liable individuals under the TIPC includes the established interest obligation of the company. These individuals are fully liable as the company-main debtor – for taxes/social insurance contributions and interest for non-payment on time.
The SAC, with a majority of the judges, adopted the opinion of the second group of decisions.
The third liable individuals, when the provided conditions are at hand, are liable for the taxes and social insurance contributions not paid in time by the company-main debtor, as well as for the established interests for delay.
The reasons of the SAC according to the interpretative decision
That arises from the special nature of that liability and the manner it is legally provided.
- is special – to certain third individuals for obligations of the company-main debtor;
- is subordinated to the one of the company-main debtor – the security and enforcement is directed first against the property of the liable company;
- is established with the issuance of a tax assessment act and is generally limited to the amount of outstanding liabilities;
- covers taxes, mandatory social insurance contributions, interests and costs for their collection – that arises from the definition of outstanding liabilities of the company-main debtor, and for the third liable individuals there are no explicit exceptions in the TIPC.
According to the interpretation of the group of provisions in the TIPC:
- The inclusion of interests in the liability of third liable individuals is by virtue of an explicit legal provision that defines the scope of liability of the company-main debtor – the prohibition on broad interpretation of the tax law is not violated.
- The liability is defined as such “for the outstanding obligation”/”outstanding obligations” – the general notion is used and not public liabilities specified by their type. And the public liabilities are defined in the TIPC and include both taxes and mandatory social insurance contributions, as well as liabilities for interests.
Ten judges signed the interpretative decision with a dissenting opinion.
Further to the interpretative decision the hearing of many cases that were suspended until its ruling will be resumed.