This article will answer the following questions:

• In what situations can management board members be liable for companies' tax arrears?
• How can taxpayers defend themselves against being held jointly and severally liable for debts?

On 27 February 2005, the Court of Justice of the European Union (CJEU) issued a very important judgment in case C-277/24 (Adjak). This judgment concerns the liability of board members for tax arrears of companies and can be safely described as a breakthrough for this group of taxpayers. 

Liability of management board members for tax debts of companies – Polish regulations

Let us recall: in accordance with the regulations in force in Poland, management board members are jointly and severally liable for the tax liabilities of capital companies – provided that these liabilities arose during the performance of their duties or their payment deadline fell during the performance of this function.

This means that both former members of the company's management boards (if the tax liability arose when they were members of the management board) and completely new members (if the tax payment deadline fell during the period in which they held that position) may be held liable. Management board members are liable for the company's tax arrears with all their assets when enforcement of receivables from the company's assets proves ineffective in whole or in part, and the management board did not file a bankruptcy petition with the court within the required deadline. 

In accordance with Polish law and practice, a member of the management board cannot join as a party to the assessment proceedings conducted against the company (because the company is a party to the proceedings) and there is no possibility of questioning the existence of the company's liability. 

What is more, management board members are often not even aware that proceedings are being conducted against the company, because they are no longer on the management board and are liable for debts incurred during the period in which they held their position in the company.

In practice, members of the management board, in proceedings concerning their joint and several liability, cannot question the amount of the liability established in the assessment proceedings previously conducted against the company.

In connection with the above, the Voivodship Administrative Court in Wrocław referred a question for a preliminary ruling to the CJEU (reference number I SA/Wr 4/23 and I SA/Wr 966/22), which concerned depriving a member of the management board of the right to effective defense in the scope of the existence of a tax liability for which he may be liable with all his assets. The court had doubts as to whether Polish regulations and practice, which do not provide for the possibility of a member of the management board challenging the amount of the liability specified in the assessment proceedings against the company, are consistent with EU regulations concerning, among others, the right to good administration, a fair trial and defense.

Groundbreaking CJEU ruling: EU judges side with board members bearing joint and several liability

The CJEU found that Polish regulations and practice that do not allow members of the company's management board to join as a party to assessment proceedings against the company are consistent with EU law. At the same time, however, the CJEU clearly stated that a member of the management board must have the right to effectively challenge the findings in the proceedings against the company and access to the files of those proceedings (which was not previously provided for in Polish regulations and practice).

Consequences of the CJEU judgment for taxpayers

Even though the CJEU found that the Polish (very restrictive) provisions are not inconsistent with EU law, they should be significantly supplemented. 

The CJEU ruling grants Polish taxpayers the right to challenge factual and legal findings and access to the company's case files. Both of these rights can be exercised already at the stage of assessment proceedings against a board member.

According to the CJEU, board members should have the right to question not only the premises proving their liability for the company's tax liability, but also the amount of the company's tax liability. In practice, this means that board members will not be "automatically" charged with liability for the company's tax debts if enforcement against its assets proves ineffective. Access to files and the ability to challenge the factual state of affairs mean the right to real defense against taking over tax arrears, often amounting to huge, multi-million amounts.

The CJEU judgment and the possibility of reopening closed proceedings 

The CJEU judgment provides a defense opportunity not only for taxpayers against whom proceedings concerning joint and several liability are pending or for whom assessment proceedings against the company are ongoing. Members of the management board against whom the proceedings have already been concluded and liability for the company's tax liabilities has been transferred to them, have the opportunity to file a motion to reopen the proceedings and challenge the decision or judgment and recover the amounts they have paid.

However, the deadlines for filing a motion to reopen proceedings are short and are as follows:

• 1 month from the publication of the judgment in the Official Journal of the EU – in the case of proceedings before tax authorities,
• 3 months from the publication of the judgment – in the case of proceedings before administrative courts. 

The CJEU ruling should be published within the next few weeks, so board members who are concerned about joint and several liability for the company's tax liabilities can already take the necessary actions to protect their interests. Since the amounts at stake are often large and can be avoided, it is worth using the support of professional tax advisors who offer services of representing taxpayers in relations with tax authorities.