What is the tax liability of board members?
Tax liability of board members refers to the circumstances in which a person serving on the management board of a company may become personally liable for the company’s unpaid tax debts. Under Polish tax law, this liability is not automatic. As a rule, taxes are paid by the company from its own assets. However, where recovery from the company proves ineffective, the tax authority may seek payment from members of its management board.
The legal basis for this liability is primarily Article 116 of the Polish Tax Ordinance. It applies, in particular, to members of management boards of limited liability companies, joint-stock companies, simple joint-stock companies and, in certain cases, other legal persons. Liability may concern tax arrears for which the payment deadline expired during the period in which a person performed management board duties, including situations where the person was formally appointed but did not actively manage the company’s affairs.
Board members may be held jointly and severally liable with other liable persons. In practice, this means that the tax authority may pursue the outstanding amount from one or more former or current board members, subject to the statutory conditions. The liability may cover not only the principal tax debt, but also interest for late payment and certain enforcement costs.
When can a board member be liable for a company’s tax debt?
The tax authority must first establish that the company has an overdue tax liability and that enforcement against the company’s assets has proved wholly or partly ineffective. A decision imposing third-party liability is issued in separate tax proceedings. The authority should demonstrate that the statutory requirements have been met and identify the period during which the relevant person held a management board position.
A board member may avoid liability if they prove one of the statutory exculpatory circumstances. These include demonstrating that a petition for bankruptcy was filed in due time, restructuring proceedings were opened or an arrangement was approved in due time, or that the failure to take such action occurred without the board member’s fault. Liability may also be excluded if the board member identifies company assets from which the tax debt may be satisfied to a substantial extent.
The assessment is fact-specific. The authority and administrative courts examine, among other matters, the company’s financial condition, the time at which insolvency arose, the internal division of responsibilities, the actions taken by board members and the availability of company assets. A formal allocation of tax matters to another board member or employee does not necessarily release a management board member from responsibility.
What tax issues may affect management board members?
Personal liability may arise in connection with unpaid corporate income tax, value added tax, withholding tax, payroll-related taxes and other public-law obligations administered by tax authorities. Tax disputes concerning incorrect settlements, unreliable invoices, transfer pricing, tax schemes or the company’s tax residence may increase the risk of significant arrears.
Board members should also be aware that tax liability is separate from potential civil liability towards the company, liability towards creditors under company law, and criminal fiscal liability. One set of facts may therefore lead to several parallel proceedings, each governed by different rules and requiring a separate defence strategy.
When is it worth seeking legal assistance?
Legal support is particularly important when a company is experiencing liquidity problems, receives a tax audit notice, is subject to tax enforcement, or has accumulated overdue public-law liabilities. A consultation may also be necessary before a board member resigns, when a company enters liquidation or restructuring, or when the tax authority initiates proceedings concerning third-party liability.
Early legal assessment can help board members document decisions, identify deadlines, secure relevant evidence and take steps aimed at limiting personal exposure. Delayed action may make it more difficult to rely on statutory grounds excluding liability and may result in avoidable disputes, enforcement measures or financial losses.
Support from a law firm in matters concerning the tax liability of board members may include in particular:
- assessment of the risk of personal liability for company tax arrears;
- representation in tax audits, tax proceedings and administrative court proceedings;
- analysis of insolvency, restructuring and liquidation-related obligations;
- preparation of explanations, evidence and procedural submissions;
- advice on management board resignations and handovers of corporate documentation;
- coordination of tax, corporate, restructuring and criminal fiscal defence strategies.
Need legal assistance regarding the tax liability of board members? Contact us.