Oct 10, 20233 min Reading time
If a company cannot pay taxes such as payroll and sales tax, it must report this to the tax authorities. If they don’t or are late, the person running the company can usually be held personally responsible for those tax liabilities. The Supreme Court has referred a case to the Court of Justice of the European Union to assess whether this legal arrangement is in accordance with the EU law principle of proportionality, in particular with regard to liability for sales tax debts.
Collection Act
Under Dutch law, the director of a company is normally not responsible for the debts of that company. However, there is an exception for certain tax debts, such as wage and sales tax, as laid down in the Collection Act. This law regulates the circumstances in which the driver can be held responsible.
If a company (for example a private company) cannot pay taxes on time, it must report this to the tax authorities within 14 days. This is called a “notification of inability to pay”. This notification gives the Tax Authorities the opportunity to take timely measures to collect the tax.
Bad management
If the notification of inability to pay is not made or is late, the driver normally becomes personally responsible for the tax. This is because failure to pay taxes is believed to be a result of poor management by the director. The driver can only avoid this responsibility if he can prove that it is not his fault that the report was not made on time. If he proves this, he must also show that his management style has not led to non-payment of taxes.
If the notification of inability to pay is made on time, the director can only be held responsible if the tax authorities can prove that the director has managed the company poorly and that the tax has therefore not been paid.
Proportionality principle
The Collection Act imposes a severe penalty on directors who fail to report inability to pay on time. In this case, the data subject claims that this penalty is excessive compared to the purpose of the reporting obligation and invokes the principle of proportionality.
The Supreme Court states that the severe punishment was deliberately included in the law. According to the law, the tax authorities have no room to waive liability or to reduce liability. This means that interests cannot be weighed up when applying the scheme. Therefore, the scheme cannot be excluded on the basis of the national proportionality principle.
This means that the person concerned remains responsible for the payroll tax debts of the private company of which he was a director, according to the Supreme Court.
Because the person concerned has also been held liable for turnover tax debts of that company, and the European VAT Directive 2006 applies to the collection of turnover tax, the Supreme Court also examined whether the scheme is in accordance with the EU law principle of proportionality with regard to sales tax debts.
According to the Supreme Court, the legal regulation means that a director can only demonstrate in exceptional cases that it is not his fault that the company has not complied with the reporting obligation on time, for example in the event of force majeure or if he acted in good faith. has relied on expert advice from a third party. These are such special circumstances that directors can rarely prove that their management style did not contribute to the non-payment of tax debts. This makes it very difficult in practice for directors to avoid liability if they have not complied with the reporting obligation. The Supreme Court wonders whether the legal regulation in this respect is contrary to the EU law principle of proportionality and has asked questions about this to the Court of Justice of the European Union.
Final decision
The Supreme Court will only make a final decision after the Court of Justice of the European Union has answered the questions.