Is it possible for the managing director to be liable for the company’s tax arrears?

Imagine a situation where the managing director does not properly perform his/her function as a member of the statutory body, for example, he/she fails to pay the tax that the company is obliged to pay or breaches another obligation in such a way that he/she commits a breach of due care. The company is subsequently assessed tax during an audit and is also assessed penalties.

Is the managing director liable to the tax authorities for tax not paid by the company?

The Supreme Administrative Court held in its decision No. 10 Afs 4/2024-38 that liability under civil law applies in tax matters, i.e. also the liability of the statutory body of a legal person towards its creditors.

A managing director who has breached his/her duty of care and caused damage to the company, here by being assessed penalties, is obliged to compensate the company for the damage and, if he/she fails to compensate the company, he/she is liable to the extent of the damage to the company’s creditors if they cannot claim performance from the company. However, the breach of the duties of the managing director which may give rise to liability for the company’s tax liabilities need not relate to the company’s tax liabilities. The conditions are as follows:

• The managing director has breached the duty of care
• The company has suffered damage as a result of the breach
• The managing director has failed to reimburse the company for the loss
• The company has incurred a payment liability to the tax authorities
• The company has failed to meet this tax liability
• The tax administrator has asserted liability against the managing director

The tax administrator’s position will not usually be easy, especially when proving a breach of due diligence. However, practice shows that this may not be unrealistic.

Do you have any questions about managing directors‘ liability? Let us know at any time.