Liability of management board for delayed tax payments

17.12.2014 Liability of management board for delayed tax payments

Contents of the Amendments Pursuant to the indicative abstract, the purpose of the Amendments is facilitation of tax collection and administration by increasing the liability of current or former management board members for payment of taxes of a legal entity.

The Amendments prescribe that henceforth the SRS will be able to address a person, who has been a management board member of a legal entity during the period when the delayed tax payments have occurred, with respect to compensation of such delayed tax payments, provided that all the below listed criteria have been fulfilled as well:

1. the amount of delayed tax payments exceeds the amount of 50 minimum monthly salaries (i.e., EUR 18,000 in 2015);
2. the legal entity has been notified of the decision on compensation of delayed tax payments;
3. it has been established that after establishment of delayed tax payments the legal entity has disposed of assets to such person, who corresponds to the definition of an interested person of the management board member within the meaning of the Insolvency Law (i.e., shareholders or members of partnership, members of management bodies, procurator and commercial attorney, person being married to, in kinship or affinity relations to the second degree, creditor within one group of companies with the management board member, and all such persons have been in such status for the preceding 5 years) (hereinafter the disposal of assets of the legal entity);
4. a deed on the impossibility of debt recovery (i.e., a bailiff’s deed, which serves as basis for statement that the legal entity will not be able to pay the taxes into the state or local government budget);
5. the management board of the legal entity has not filed an application for insolvency proceedings of the legal entity.

However, the Amendments will be applicable solely to those delayed tax payments, which are incurred by the legal entity after 1 January 2015

If there are several members in the management board, the SRS will be entitled to request compensation of the delayed tax payments either from all management board members jointly, or from each management board individually. 

It is important that the Amendments prescribe that henceforth the SRS will be entitled to impose a prohibition to perform cash transactions upon the person, which has been served the tax recovery (collection) order on write-off of funds, and he/she has failed to perform it within a period of 30 days. A new informative return will be introduced, which will have to be submitted by the providers of leasing and crediting services (except banks) once a year regarding the leasing and/or interest bearing loan payments, the amount whereof exceeds EUR 360 per month or EUR 4,320 per annum, made by private individuals.

Adoption of the SRS decision on compensation of delayed tax payments by management board member

The SRS will first warn the legal entity and the management board member of the commencement of compensation of the delayed tax payments by the management board member 3 three months in advance, save the case when the deadline for payment of the tax has been prolonged, postponed or divided.

Upon receipt of such warning it will still be possible, within a period of 15 days, to submit an application for legal protection proceedings or insolvency proceedings of the legal entity, or to make the delayed tax payment by informing the SRS thereof in writing. In such case the liability of the management board member for compensation of tax will not set in.

The management board member will not be liable for compensation of taxes, if he/she proves that the application for insolvency proceedings has not been submitted to the court due to objective reasons (the Amendments do not provide an explanation of the criteria “objective reasons”, thus such notion may have wide interpretation), and there is evidence that the disposal of assets of the legal entity has been appropriate or the management board members has not been liable for emergence of delayed tax payments and disposal of the assets of the legal entity. In order to prove that, the management board member shall submit documents – detailed explanations with evidence, as well as documents on the financial status of the legal entity – to the SRS within a period of 1 month as from the receipt of the aforementioned warning.

The SRS will ensure gathering of the necessary documents, if the management board member does not have access to the documents of the legal entity as at the moment of receipt of the warning. Upon receipt of all the documents the SRS will make an assessment, whether to adopt the decision on compensation of delayed tax payments.  

The SRS will adopt the decision on compensation of delayed tax payments within a period of 2 months as from the notification of the warning, if the management board member fails to submit all the documents to the SRS or informs of his/her inability to submit such documents due to their non-compliance. 

Execution of the SRS decision on compensation of delayed tax payments

Upon the SRS decision coming into effect, the management shall make all the payments prescribed therein within a period of 30 days as from the date of notification of the decision, otherwise they will be recovered by writing-off funds from the tax payer’s bank account, save the cash, or by directing recovery towards property..

Management board member’s behaviour after adoption of the Amendments

It would be advisable to every management board member to follow the financial status and accounting documentation of the legal entity in an especially close manner.

In case of establishment of delayed tax payments it should be assessed, whether there is a necessity to file an application for legal protection proceedings or insolvency proceedings. Likewise, evidence shall be ensured regarding the reasons for failing to file the application for legal protection proceedings or insolvency proceedings.


For more information please contact: Linda Štrause and Inese Hazenfusa

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