CJEU to assess Polish legislation on board members’ liability for company tax debts

The CJEU will settle on the compliance of polish law on management board members liability for tax arrears with EU law.

By decisions of 25 January 2024 (case number I SA/Wr 4/23) and 31 January 2024 (case number I SA/Wr 966/22), the Provincial Administrative Court in Wrocław submitted four questions to the CJEU for a preliminary ruling on the compliance with EU law of Polish regulations and practice regarding the liability of management board members for companies tax arrears.

Procedural rights of a management board member

The Administrative Court in Wrocław raised doubts as to whether an interpretation of Polish legislation that does not allow a member of a company’s management board to join as a party to tax assessment proceedings against the company, in a situation where that member of the management board may potentially be liable with all of his or her own assets for the company’s tax arrears (if enforcement against the company proves ineffective), is consistent with EU law.

Current national practice does not recognise a member of the management board as a party to the tax assessment proceedings against the company. Meanwhile, the assessment decision issued against the company constitutes a kind of prejudicat in the proceedings concerning the liability of that member of the management board. This is because, according to a well-established jurisprudence line of administrative courts, a member of the management board, in proceedings concerning his/her own liability, cannot effectively challenge previous findings made in proceedings against the company. This means that currently a management board member cannot effectively challenge the existence of the company’s liability both in the assessment proceedings against the company (board member is not considered a party to the tax assessment proceedings againt the company) and in the proceedings concerning individual  liability.

The Wrocław Administrative Court therefore rightly perceived a significant problem consisting in depriving a management board member of the right to an  effective defence regarding the existence of a tax liability for which board member may be liable with all his or her assets.

Grounds for the board member’s liability

Further questions addressed to the CJEU concern the compatibility with EU law of:

• olish regulations concerning the liability of members of management boards for the VAT tax liabilities of companies without first establishing whether the member of the management board acted in bad faith or that his conduct could be accused of culpable error or negligence,
• the Polish practice of requiring a member of the management board – in order to exempt himself from liability for the company’s arrears – to file an application for the company’s bankruptcy if he has only one creditor, while under Polish bankruptcy law it is clear that such an application cannot be effectively considered by the bankruptcy court.

The Provincial Administrative Court in Wrocław noted the doubts that have arisen regarding the very broad liability of members of company boards and the automatism of ascribing to board members liability for the companies’ arrears regardless of the circumstances in which the liabilities themselves arose, as well as the board member’s influence on the non-payment of tax.

Implications of potential CJEU rulings

In the event that the CJEU finds that the Polish regulations are incompatible with EU law, board members may be equipped with a very serious weapon against the current restrictive domestic practice of attributing liability for companies’ tax arrears to them. It may turn out that they will be given much broader tools to effectively defend themselves from incurring liability.

A ruling by the CJEU in favour of the members of the management board will also be able to be the basis for the resumption of proceedings concluded with negative rulings for the members of the management board (both at the stage before tax authorities and administrative courts).