On 30 April 2025, the Court of Justice of the European Union (“CJEU”) decided the Polish case C-278/24, confirming that the Polish joint and several liability model applicable to executive directors (management board members) in companies, including ex-directors, is compatible with Union law, on condition it enables the director to raise the defence of acting in good faith and with due care in the conduct of company’s affairs.
The case concerns a former chairman of the board of directors (president of management board) of a company. During his time on the board the company incurred arrears of VAT. Having established that the assets of the company were insufficient to discharge the overdue tax, the tax authorities commenced proceedings seeking to establish the joint and several liability of the director for the tax arrears of the company.
Under Article 116 of the Tax Code, a current or former member of the board of directors may escape liability for the company’s tax arears if he or she:
- demonstrates that he or she filed for a declaration of insolvency in due time or that a decision was issued within such time to initiate restructuring proceedings or approve a scheme of arrangement in arrangement proceedings;
- demonstrates that the failure to file for a declaration of insolvency was not his or her fault;
- identifies, for the purposes of enforcement, company assets which are sufficient to settle the company’s tax arears to a substantial extent.
The director concerned requested a judicial review of the tax authority’s decision, arguing that there was no reason to file for a declaration of company’s insolvency. He claimed that, at that stage in the life of the company, it would have been premature and would not have had any legal effect as the company had only one creditor (public exchequer) whereas, in accordance with the law of insolvency procedure, insolvency proceedings may be commenced when the debtor is in breach of his obligations owed to at least two creditors. The case reached a first-tier tax court in Poland which asked CJEU for a preliminary ruling. CJEU held that a national system under which:
- a member or former member of the board of directors of a company with a value added tax debt is held jointly and severally liable with that company for tax arrears arising during his or her term of office,
- that liability is limited to tax arrears, enforcement of which against that company has proved unsuccessful in whole or in part,
- exemption from that liability depends, in particular, on proof adduced by the member or former member of the board of directors that an application for a declaration of insolvency in respect of that company has been filed in due time or that the failure to file that application is not due to fault on his or her part,
is not incompatible with Union law in so far as that member or former member, in order to demonstrate that there was no such fault, may validly claim that he or she exercised all due diligence in the conduct of the affairs of the company concerned. At the same time that member or former member cannot, for that purpose, merely claim that that company had the public exchequer as its sole creditor when its insolvency was established, which was the factor leading to the failure to file an insolvency application.
This is another in a series of important CJEU decisions on joint and several liability of executive directors, who will now have stronger arguments on their side in disputes with the taxman. The judgment may also potentially be relied on to reopen closed cases in which those circumstances were not taken into consideration.
If this issue pertains to your business and you are interested in our assistance, please contact us.
This blog post is provided for general information purposes to keep you up-to-date with changes in tax law, tax rulings by authorities, case law of courts and interesting commentaries. Doradztwo Podatkowe WTS&SAJA shall not be held legally liable for any acts or omissions resulting from reliance on such information.