Background
Under Dutch law, the director of a legal entity is in principle not liable for the debts of that legal entity. The Collection Act makes an exception to this for certain tax debts, including wage and sales tax owed by a legal entity. The circumstances under which the director is liable are further regulated in that law. This arrangement entails the following.
If a legal entity (in the case of the interested party in this case: a private company) is unable to pay certain tax debts on time, the legal entity must report this to the Tax Authorities within 14 days after the tax should have been paid. . This is also called notification of inability to pay. Such a notification makes it possible for the Tax Authorities to consider taking collection measures in a timely manner.
If the notification of inability to pay is not made or is not made on time, the director is in principle personally liable for that tax. Then the presumption applies that the non-payment of the tax is the result of his ‘manifestly improper management’. In such a case, the director can only escape liability if he proves that it is not his fault that the notification of inability to pay was not made or was not made on time. If he proves this, he must then also prove that it was not due to his management style that the legal entity did not pay its tax debts.
If the notification of inability to pay has been made in time, the director is only liable if the Tax Authorities prove that the director has apparently managed the legal entity improperly and that the tax has not been paid as a result.
The case: appeal to the principle of proportionality
The regulations of the Collections Act therefore impose a heavy penalty on the director for failure to report inability to pay or not to report on time. The interested party in this case believes that this sanction is disproportionate for him in relation to the goals to be served by the reporting obligation. In doing so, he appeals to the principle of proportionality.
According to the Supreme Court, the severe sanction was intended and provided for by the legislature. Under the statutory regulations, the Tax Authorities are not free to waive liability or to moderate liability. This means that no weighing of interests may take place when applying the scheme. Therefore, the scheme cannot be disapplied on the basis of the national principle of proportionality.
For the interested party in this case, this means that he is liable for the payroll tax debts of the private company of which he was a director, according to the Supreme Court.
Since the interested party has also been held liable for the turnover tax debts of that company, and the European VAT Directive 2006 applies to the collection of turnover tax, the Supreme Court also assessed whether the scheme is in accordance with the EU law principle of proportionality insofar as relating to sales tax debts.
According to the Supreme Court, the legal regulation regarding the obligation to report inability to pay means that a director will only plausibly can make it clear that it is not his fault that the legal entity has not complied with its reporting obligation or has not complied with it on time. These are such special circumstances that the director will very rarely be allowed to prove that it was not due to his management style that the legal entity was unable to pay its tax debts. As a result, if the reporting obligation has not been met, it is, according to the Supreme Court, extremely difficult in practice for a director to avoid liability. The Supreme Court wonders whether the legal regulation is for this reason contrary to the principle of proportionality under EU law. Today he asked questions about this to the Court of Justice of the European Union.
Further course of events
The Supreme Court will first await the answer to its questions by the Court of Justice of the European Union. The Supreme Court will then make a final decision taking these answers into account.
Publication on Rechtspraak.nl
ECLI:NL:HR:2023:1371