On April 30, 2025, the ECJ issued its decision in the case C-278/24 (Genzyński).
Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 273 – Measures to ensure the correct collection of VAT – VAT debt of a taxable person – National legislation providing for the joint and several liability of the former chair of the board of directors of the taxable person – Exemption from joint and several liability – Absence of fault – Application for a declaration of insolvency – Existence of only one creditor – Proportionality – Equal treatment – Right to property – Legal certainty
Summary
- Facts: P.K. served as the chair of the board of directors of a company, E. sp. z o.o., which incurred VAT debts between May and August 2017. The Polish tax authorities sought to hold P.K. jointly and severally liable for these debts under national law, asserting that the company had failed to pay its VAT obligations and that enforcement against the company’s assets was unsuccessful.
- Legal Questions: The Regional Administrative Court in Wrocław referred questions to the Court of Justice of the European Union, asking whether the VAT Directive and principles of EU law (including proportionality, legal certainty, and equal treatment) preclude national legislation that imposes joint and several liability on board members without establishing fault, and whether it is fair to require a declaration of insolvency when the company has only one creditor.
- Decision: The Court ruled that the VAT Directive does not preclude a national system that holds board members jointly liable for a company’s VAT debts, provided that the liability is limited to debts arising during their term and that exemptions from liability exist, contingent on demonstrating due diligence in managing the company.
- Arguments: The Court noted that while Member States have discretion to enforce VAT collection, this must comply with EU principles. Specifically, the system must allow for the possibility of rebutting liability by showing that the board member acted diligently. Furthermore, the requirement to file for insolvency must not create unjustified burdens, especially when a company has only one creditor, which could effectively negate the board member’s ability to seek exemption.
- Conclusion: The Court emphasized that while joint and several liability can aid in VAT collection, it must respect principles of legal certainty and proportionality. The system should not result in unfair discrimination between board members of companies with multiple creditors versus those with a single creditor, as this could undermine the principle of equal treatment and lead to adverse outcomes for public interests.
Articles in the EU VAT Directive
Articles 193, 205 and 273 of the EU VAT Directive 2006/112/EC.
- T Directive (Article 273): Allows Member States to “impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion.” This is the primary basis for Member States implementing measures beyond the standard VAT liability rules.
- Article 325 TFEU: Requires Member States to “counter fraud and any other illegal activities affecting the financial interests of the Union through effective measures which will act as a deterrent.” This reinforces the objective of ensuring correct VAT collection.
- VAT Directive (Article 205): Allows Member States to provide for joint and several liability in situations where a person other than the primary VAT payer is involved. However, the Court deemed this article not directly relevant to the specific circumstances of this case, where the liability is for general VAT arrears rather than specific transactions.
- Charter of Fundamental Rights: Articles 17 (Right to Property), 20 (Equality before the law), 21 (Non-discrimination), 41 (Right to good administration – though found not directly applicable to Member States in this context), and 47 (Right to an effective remedy and fair trial – considered in relation to the effectiveness of exemption mechanisms).
- General Principles of EU Law: Proportionality, Legal Certainty, and the protection of legitimate expectations.
Facts & Background
Applicant is ‘P.K’. He was director of the company ‘E.Sp’ between 2014 and 2017. In 2022, the tax authority held PK jointly and severally liable for the company’s VAT payment arrears, which was due for the months May to August 2017. PK has appealed against the tax authority’s decision.
Recital:
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. The referring court states that this may conflict with various fundamental rights and with the principle of proportionality. In addition, the only option for PK to avoid liability was to file for bankruptcy, which, according to the referring court, could conflict with, among other things, the right of ownership.
Source ecer.minbuza.nl
Questions
- Preliminary questions:
1. Should the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (hereinafter also: ‘VAT Directive’), including Articles 193, 205 and 273, read in conjunction with Article 325 of the Treaty on the Functioning of the European Union (hereinafter also ‘TFEU’) and Article 17 of the Charter of Fundamental Rights of the European Union (hereinafter also ‘Charter’), and principle of proportionality can be interpreted as precluding national legislation which provides for a mechanism of joint and several liability of directors of legal persons for the VAT debts of such persons, without it being determined in advance whether those directors have acted in bad faith or that they could be accused of culpable error or negligence in connection with their conduct? - 2. Should the provisions of the VAT Directive, including Articles 193, 205 and 273, read in conjunction with Article 325 TFEU, the principles of legal certainty and legitimate expectations and the principle of the right to governance, read in conjunction with Article 2 of the Treaty on European Union (principle of the rule of law and respect for human rights) and Article 47 of the Charter (effective remedy and the right of access to justice) , be interpreted as precluding a national practice requiring a director of a legal person with a single creditor to file an application for bankruptcy in order to avoid joint and several liability for that person’s VAT debts , even though such a request is devoid of purpose under the rules and practice of national insolvency law and therefore infringes the essence of the right to property (Article 17 of the Charter)?
- 3. Should the provisions of Articles 193, 205 and 273 of the VAT Directive, read in conjunction with Article 325 TFEU, and the principles of equality before the law and non-discrimination (Articles 20 and 21 of the Charter) be read in this way? interpreted as precluding national legislation [as referred to in point 1] under which directors of legal persons may be treated unequally in such a way that a director of a legal person with more than one creditor assumes liability for the debts of the company managed by him by submitting a request for bankruptcy, while a director of a legal entity with only one creditor does not have the opportunity to effectively submit such a request, so that he cannot escape his joint and several liability for the VAT debts of that legal entity and cannot claim the right to an effective remedy (Article 47 of the Charter)?
AG Opinion
None
Decision
Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive (EU) 2018/1695 of 6 November 2018, read in conjunction with Article 325 TFEU, as well as the right to property and the principles of equal treatment, proportionality and legal certainty,
must be interpreted as not precluding a national system under which:
– a member or former member of the board of directors of a company with a value added tax debt is held jointly and severally liable with that company for tax arrears arising during his or her term of office,
– that liability is limited to tax arrears, enforcement of which against that company has proved unsuccessful in whole or in part,
– exemption from that liability depends, in particular, on proof adduced by the member or former member of the board of directors that an application for a declaration of insolvency in respect of that company has been filed in due time or that the failure to file that application is not due to fault on his or her part,
in so far as that member or former member, in order to demonstrate that there was no such fault, may validly claim that he or she exercised all due diligence in the conduct of the affairs of the company concerned, it being specified that, for that purpose, that member or former member cannot merely claim that that company had the public exchequer as its sole creditor when its permanent insolvency was established.
Source
Cited Case Law
- Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ (C-1/21): This case is cited regarding the interpretation of VAT liability and the conditions under which third parties can be held liable for the VAT debts of a company. It emphasizes that national measures imposing liability must comply with EU law principles.
- Paper Consult (C-101/16): This case is referenced concerning the obligations that Member States may impose to ensure the correct collection of VAT and prevent evasion, highlighting the discretion Member States have under Article 273 of the VAT Directive.
- Global Ink Trade (C-537/22): Mentioned in relation to the interpretation of measures necessary for VAT collection and fraud prevention, reinforcing the obligation of Member States to ensure effective VAT collection.
- Herdijk (C-613/23): This case is referenced regarding the principle of proportionality in the context of liability for tax debts, illustrating that strict liability without the possibility of demonstrating a lack of involvement in the taxable events is contrary to EU principles.
- Dranken Van Eetvelde (C-331/23): This case is mentioned in the context of the need for a rebuttable presumption regarding board members’ knowledge and influence over their company’s tax obligations, ensuring they can defend against liability claims.
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