In a series of our previous articles, we looked into the responsibility of the members of the Board of Directors of an SA. Specifically, we examined the internal (intra-company) liability of the members of the Board of Directors for their actions or omissions, which endanger the company’s property (art. 102-108, law 4548/2018). Also, with the “external” responsibility of the directors of the SA for the direct damage to shareholders or third parties due to their (illegal and culpable) action. In addition, the liability of the aforementioned persons towards corporate creditors due to causing or delaying the bankruptcy. In the present article we will look into the other responsibilities that may fall on the administrators of the SA from tax violations of the latter.
Liability for Fiscal Violations
Joint Liability of Managers of the SA
The administrators of the SA are, subject to conditions, personally and jointly liable for the tax debts and obligations of the SA.
Specifically, as expressly provided in article 50 Code of Fiscal Procedure (law 4987/2022), “Persons who are executive presidents, directors, general managers, administrators, managing directors, appointed to the administration and liquidators of legal persons and legal entities, as well as and the persons who in fact exercise the management or administration of a legal person or legal entity, are personally and jointly liable for the payment of income tax, withholding tax, any imputed tax, VAT. and ENFIA, owed by these legal persons and legal entities, regardless of the time of their certification, as well as for interest, fines, surcharges and any administrative monetary sanctions imposed on them… “.
In order, however, to establish the said responsibility of the specific persons, the following conditions must be met cumulatively:
(a) The aforementioned persons must have had the above qualities during the time of operation of the legal entity or at the time of its dissolution or merger or during its liquidation.
(b) The debts became overdue during the term of office of the above persons (subject to the law regarding the time of reduction of the debts when any tax is imposed following an audit by a tax authority and the cases subject to regulation). If, therefore, a debt becomes overdue in the following year from the one to which it relates, then the person who exercises the administration of the SA when the debt became overdue is responsible. In other words, the person who was in charge of the SA at the time the disputed debt was incurred is not liable.
(c) The debts were not paid or attributed to the State due to the fault of the above persons-administrators (with the explicit clarification, however, that the burden of proof for the eventual non-existence of culpability is borne by the specific persons).
This is, therefore, non-genuine or illegitimate objective liability. This means that in the event that the above persons are held responsible (as discussed above), their culpability is also presumed. Unless these show a lack of culpability.
Law 4987/2022, in continuation of Law 4646/2019, aims to correct the incorrect wording of the existing CFP regime. Based on the latter, it was usual for natural persons to be liable (also), who, although they participated in the management of the SA, did not, however, exercise management in reality.
In this specific context, the Explanatory Report n. 4646/2019 states that under the previous regime, the additional joint and several liability of those exercising administration to legal persons or entities for the tax debts of the latter was structured in such a way that it could be imposed on persons who they had no participation in the administration. In other words, obligations were born to the above persons, simply because they happened to be in charge at the time of dissolution or merger of the company.
Given the above, the reform of the institutional framework is aimed at the assumption of responsibilities by persons who actually exercised management during the critical time of generation of the tax debt. That is, by persons who had the ability to act in the name and on behalf of the legal entity and fulfill its obligations.
Criminal Liability of Directors of the SA
In order to prevent violations of the tax legislation by the liable legal entities, criminal sanctions are threatened against the managers (and) of the SA. The specific sanctions concern the offences: (a) tax evasion and (b) non-payment of confirmed debts to the State and the wider public sector.
(a) With respect to the crimes of tax evasion:
The crimes of tax evasion are standardized in article 66 KFD.
Specifically, the crime of tax evasion is committed by anyone who intentionally conceals taxable income in order to avoid paying income tax, ENFIA or special real estate tax. Also, anyone who does not pay VAT, PKE, insurance premium tax and withheld and imputed taxes, fees and contributions (having completed the above actions as, specifically, described in the law).
Based on the value of the violation, the crime takes either a misdemeanor or a felony form, leading to a different penalty (from at least two years in prison to imprisonment).
The crime of tax evasion is also committed by anyone who issues false or fictitious tax information, as well as anyone who accepts fictitious tax information or falsifies such information, regardless of whether or not they are evading tax payment.
Especially with regard to legal entities – and, in this case, SAs – the legislator determines the perpetrators (and accomplices) of the (above) crimes of tax evasion.
Specifically, it is provided that as perpetrators in the AU countries, if by any act or omission they contributed to the commission of the above offences, the following are considered:, as well as in general any person mandated either directly by law or by private will or by court decision in the administration or management or representation thereof. If all the above persons are missing, the members of the boards of directors of these companies are considered as perpetrators, as long as they actually temporarily or permanently exercise one of the duties mentioned above. » (see art. 67 §1 CFP).
Furthermore, it is provided that “the person who knowingly signs an inaccurate tax return as a proxy, as well as anyone who in any other way knowingly cooperates or offers direct assistance in the commission of these crimes, is punished as a direct accomplice ” (see art. 67 §3 CFP).
While, finally, as perpetrators or participants of the above crimes, it is expressly provided that they are also considered “…those who actually exercise the powers and responsibilities that correspond to the roles and positions named in the KDF.” (see art. 67 §4 KFD).
(b) Regarding the offense of non-payment of confirmed debts to the State and the wider public sector:
The offense of non-payment of debts is committed by anyone who does not pay the debts certified to the Tax Administration to the State, legal entities under public law, businesses and organizations of the wider public sector for a period of time longer than four months (art. 25 § 1 Law 1882/1990).
The commission of this offense is punishable by imprisonment. Its amount depends, also in this case, on the value of the debt.
And with regard to the specific offence, the legislator expressly determines the persons against whom the relevant penalties are imposed in the cases of the nationals of the Republic. Specifically, as provided for “…the prescribed penalties…are imposed, in order: for domestic limited liability companies, to the presidents of the Board of Directors, to the managing directors or authorized or co-acting advisors or managers or general managers or directors thereof or to any person authorized or directly by the law either by private will or by judicial decision in the administration or management thereof, cumulatively or not.”.
It is further provided that in the event that all the above persons are absent, the penalties are imposed against the members of the Board of Directors of these companies, as long as they actually exercise, temporarily or permanently, one of the above duties (art. 25 § 2 par. a) Law 1882/1990).
For the above persons, the criminal prosecution is carried out for the debts to the State and third parties – except private individuals. The debts were confirmed at the time of acquisition of any of the above properties or were confirmed while they had the specific property (and this, regardless of whether they later rejected this property in any way or for any reason). Also, for the debts that were confirmed regardless of the dissolution or not of the SA, but were born or go back to the time they had this relevant status (art. 25 §3 law 1882/1990).
It was clarified, in fact, by an explicit legislative regulation (:469PC) that “…in the application and in the table of debts, the debts arising from the non-execution of fines imposed by a criminal court are not included and are not calculated for the determination of the person’s responsibility the related surcharges, interest and other charges as well as the debts from the offenses standardized in article 66 of the Tax Procedure Code together with the related surcharges, interest and other charges”. The legislator, in other words, authentically removed the charge of violation of the principle of the prohibition of double jeopardy (ne bis in dem).
Laundering of Proceeds of Criminal Activities
It should be pointed out, however, that the above crime of tax evasion is included in some of the “basic crimes” for establishing liability in terms of money laundering (Law 4816/2021). In other words: the crime of legalization coincides, cumulatively, with the crime of tax evasion. The threatened penalties for the above offense of money laundering are not at all negligible (: the offense in its basic form is punishable by a prison sentence of up to 8 years and a cumulative fine of 300 to 1,000 daily units).
The responsibilities of the board members are extremely extensive. They (also) derive from the provisions of the law on SAs. However, the other relevant regulations are probably the most important. Among them, the provisions concerning the liability of the members of the Board of Directors and administrators of the SA for the non-payment of the latter’s tax obligations are of great importance. The liability of the liable legal entity and the co-obligatory natural persons is joint and several. But more important, for many reasons, are the relative criminal responsibilities of the latter. If we consider, in fact, that those responsible will potentially be prosecuted for money laundering, we understand that the relevant responsibilities are not at all simple. Neither are they negligible.-
Stavros Koumentakis
Managing Partner
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 10th, 2023).
Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.