ECJ Preliminary Ruling Request Case C-278/24 – Joint and several liability on directors for VAT debts
On 22 July 2024, the Official Journal of the European Union published a preliminary ruling request submitted to the ECJ by the Provincial Administrative Court in Wroclaw, Poland. The court seeks to determine whether national legislation that imposes joint and several liability on directors for VAT debts, aligns with the VAT Directive, proportionality principle, and fundamental rights.
The case concerns an applicant who served as the Company director from 2014 to 2017. Due to the Company’s failure to pay VAT, the debts became tax arrears, and also no bankruptcy application was submitted. In 2022, the tax authority found the applicant jointly and severally liable for the Company’s VAT arrears for the relevant periods, as he was on the management board when the arrears accrued.
Under Article 273 of the VAT Directive, Member States have discretion as to the means they use to ensure full collection of VAT on their territory, within the limits of Union law. The joint and several liability of directors of commercial companies is regarded as strict liability under national law in Poland.
In the view of the above, the reference to the ECJ for a preliminary ruling in the subject case, focus on three main aspects:
- Whether a board member can be held jointly and severally liable for a legal person’s VAT debts if they acted in bad faith or their actions amount to culpable error or negligence?
- Whether a national practice requiring a board member to file for bankruptcy to avoid joint and several liability for VAT debts with a single creditor infringes on the essence of property rights?
- Whether national legislation that prevents a board member from avoiding (by filing for bankruptcy) joint and several liability for VAT debts of legal person with more than one creditor constitutes unequal legal treatment?
The referring court, in relation to the above case, seeks clarification on the interpretation of Articles 193, 205 and 273 of the VAT Directive, in conjunction with Article 325 of the Treaty on European Union, as well as Articles 17 and 47 of the Charter of Fundamental Rights of the European Union, and the principles of proportionality, the right to a fair hearing, and the rights of the defense.
The case highlights concerns relating to the adequacy of legal protection for company directors facing joint and several liability for VAT debts. It questions whether national laws imposing such liability without considering the director’s intent or negligence, and requiring bankruptcy filings to escape liability, align with EU principles of proportionality and fundamental rights. The case underscores the need to ensure that national practices are consistent with EU standards on legal fairness and effective remedies.
The preliminary ruling request of the Court of Justice of the European Union is available here.
The above news was kindly provided by Independent Tax Advisers (Poland), contact: [email protected].
