Article 41 of the General Spanish Tax Law (Ley General Tributaria) provides for the legal possibility of holding persons other than debtors liable (either subsidiarily or jointly and severally) for tax debt, stipulating that, in the absence of an express legal proviso, the liability shall be subsidiary in nature. What’s more, Article 42 of the same Law sets forth specific cases of joint and several liability, without making explicit reference to company directors.
The issue of the compatibility of national regulations regarding the joint and several liability of persons other than the tax debtor, with EU legislation, was studied in a recent judgment of the Court of Justice of the European Union, of the 14th of November 2024 (case C- 613/2023). In particular, the judgment defines the extent of the joint and several liability of a company director in breach of their legally established obligation under the laws of the Netherlands to notify the Public Administration of the inability of the company under their directorship to service a Value Added Tax debt.
The judgment answers a preliminary question raised by a court of the first instance of The Hague, in a case where a company director impugned the decision of the Dutch Tax Authority to hold them jointly and severally liable for the payment of a company debt, as well as for the payment of arrears interests and procedural costs. Although the case concerns VAT, it may well be extended to other taxes, since that which is analysed are the limits of liability of the director in relation to their compliance with tax obligations on behalf of the company under their directorship.
The questions raised by the court of the first instance in its request for a preliminary ruling are twofold:
1. Whether, in light of the principle of proportionality enshrined in Article 273 of Directive 2006/112, it must be understood that, in opposition to said article stands a national regulation according to which, in order for the company director of an entity in breach of the obligation to notify its incapacity to service a debt to be freed from their joint and several liability for payment, they must demonstrate that their breach of said obligation is not attributable to them.
In this section of the judgment, the CJEU states that, if Member States are capable of legislating with the aim of enforcing tax collection, this right must be exercised respecting the principle of proportionality. Therefore, the court declares national measures which create an ‘objective’ joint and several liability regime incompatible with said principle – that is, a regime which does not permit a person who is not the tax debtor to be freed from said liability by providing evidence that they are totally unaffiliated with the acts of said debtor. In other words, joint and several liability may only be legally established when there exists a factual or legal relationship between the tax debtor and said third party (i.e. the director), in light of the principles of legal security and proportionality. [1] The fact that (1) the company director has acted in good faith, “with all the diligence of a well-informed businessman”, (2) they adopted all reasonable measures within their reach; and (3) they did not participate in any abusive or fraudulent act, are elements which must be borne in mind to determine the possibility of holding them jointly and severally liable for the payment of the debt. In sum, the regulations of Member States which, although they establish a priori the joint and several tax liability of a person different from the debtor, also allow for the possibility to demonstrate that the director was not responsible for the breach, shall be compatible with the laws of the European Union, provided they do not limit the circumstances which may be deemed as force majeure
2. The second issue raised is whether it should be understood that the aforementioned principle of proportionality established in Article 273 of Directive 2006/112, goes against the national regulation which establishes the joint and several liability for payment of the director over a specific period of time, immediately following that in which the director was able to demonstrate that they acted in good faith, and even if they were able to demonstrate that they acted with all the diligence required of a well-informed businessman during the preceding three years, with the aim of avoiding the entity’s breach of its obligations and its engagement in any abusive or fraudulent dealings.
The core of the issue under analysis is what happens when the national regulation allows for a range of tax periods in which the joint and several liability for payment may apply, when, despite the director notifying (both punctually and correctly) the company’s inability to service the tax debt, the tax authority demonstrates that said default is due to the director’s mismanagement during the 3 years preceding the date of said notification. The CJEU clarifies that, in these cases, the joint and several liability of the director who erred in their obligation to communicate the incapacity for payment of the company under their directorship only takes effect in relation to the period during which no notification was made, and does not apply to the prior period in which the entity duly notified its incapacity for payment.
Notwithstanding, the CJEU also highlights that the principle of proportionality is compatible with a national regulation that establishes the joint and several responsibility (of the company director) in breach of a specific tax obligation of the company in relation to a debt over a specific period of time, despite having been freed, for the same reason cited above, from a debt corresponding to an immediately preceding period, and despite having been able to demonstrate that they acted in good faith and that, during the three preceding years, they did everything required to avoid that entity breaching its obligations and engaging in fraudulent or abusive practices.
The case of the judgment we have reviewed describes an instance of a company’s formal breach of its tax obligation, for which the company director was held jointly and severally liable, as long as certain circumstances were complied with. And so, the CJEU advises that it is not possible for national laws to implement an ‘objective’ joint and several liability regime, but rather that said responsibility must constitute a rebuttable presumption (presunción iuris tantum), which may be rebutted by the director by demonstrating their innocence in relation to the company’s breach. If the national regulation does not provide for this exculpatory mechanism, it will be deemed contrary to the principle of proportionality laid down in Directive 2006/112, and, consequently, shall not apply; if it does, the tax authority shall grant the director the opportunity to prove the lack of subjective connection between the breach and themselves, which, if successfully done so, will exonerate them from any liability for payment of the tax debt.
Eduardo Vilá
Vilá Abogados
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10th of January 2025
[1] Judgment CJEU 13/10/2022 Case C 2022/788.
