On 18 June 2024, the Supreme Administrative Court issued a judgment No. 10 Asf 4/2024 – 38, in which it adopted the legal opinion that the tax administrator is entitled to independently assess and decide on the obligation of members of elected bodies of legal persons with tax arrears to pay them on the basis of statutory liability under the provisions of Section 159(3) of Act No. 89/2012 Coll., the Civil Code, as amended (hereinafter referred to as the “CC“).
The Supreme Administrative Court followed the earlier judgment of the Supreme Court of 27 March 2024, No. 27 Cdo 1993/2023-454, in which the Supreme Court took the position that in cases where the tax administrator considers that a member of an elected body of a legal person is legally liable for a public debt, the tax administrator is granted the power to proceed in accordance with Act No. 280/2009 Coll, Tax Code, as amended (hereinafter referred to as the “Tax Code“), and to independently assess as a preliminary question under Section 99(1) of the Tax Code whether the statutory prerequisites for the liability of a member of an elected body of a legal person for uncollectible tax arrears exist.
The conclusions of the above-quoted judgments can be considered controversial, in particular because they confer on the tax administrator, as a public administration body, the de facto power to independently assess and decide on matters of a private law nature, specifically on the question of the fulfilment of the conditions for the creation and existence of statutory liability of a member of an elected body of a legal person, all in a situation where the tax administrator is subsequently entitled to enforce its own decisions, all without the possibility of review by private law courts.
Conditions of liability of a member of an elected body of a legal company for the company’s debts
The conditions and scope of liability of a member of an elected body of a legal entity for its debts are determined by substantive law, specifically by the provisions of Section 159 par. 1 and 3 of the Civil Code, which imply that members of elected bodies are liable to creditors for the debts of the legal entity to the extent of the damage they have caused during the performance of their duties as a result of a breach of their duties to perform their duties with the necessary loyalty and with the necessary knowledge and care, to the extent that the legal entity has not yet been compensated for the damage, provided, however, that the creditors cannot claim performance from the legal entity itself.
In general, therefore, a member of an elected body of a legal person is not liable for its debts. The above-quoted provision of the CC is only a corrective to this rule, applicable to situations where there is a breach of his legal duty towards the legal entity to act with the necessary loyalty, knowledge and care, or in other words, with due care. There is a relatively rich case law on the applicability of these rules and the resolution of cases in practice, which is not the subject of this article, but it can be expected that it will probably be significantly expanded as a result of the de facto acceptance of the practical application not only by the courts but also by the administrative authorities in administrative proceedings, namely the tax administrator in the framework of the proceedings under the Tax Code.
We consider this situation to be highly risky from the point of view of independence and impartiality of decision-making, since the tax administrator, however much he should act in this way in exercising his powers, cannot overlook the fundamental purposes of his activity, which include ensuring the payment of taxes. It is therefore reasonable to doubt whether a tax administrator can realistically be completely impartial in the objective assessment of the question of the damage caused to a legal person by a member of its elected body in the exercise of his or her functions as a primary prerequisite for liability for a debt in the form of an established but uncollectible tax arrear.
Procedure for recovery of tax arrears from a tax guarantor
As indicated above, in the above cases the tax administrator proceeds in accordance with the provisions of Section 171 of the Tax Code, i.e. after the previous unsuccessful recovery of the tax arrears from the tax subject, it addresses a call for payment to the person to whom the law imposes the obligation of liability, and at the same time sets a deadline for the payment of the arrears. At that moment, the tax guarantor enters the role of a party to the tax proceedings and is granted the rights and obligations arising from its procedural position.
However, before the tax authority proceeds with the guarantee call, the question of the existence of the guarantee must first be answered in a binding manner. If this question has not already been bindingly assessed by another public authority, the tax administrator proceeds in accordance with the provisions of Section 99(1) of the Tax Code and assesses this so-called preliminary question itself, i.e. for the purposes of the proceedings decides which persons act as tax guarantors and to what extent they are liable for the tax arrears of the tax subject.
According to the aforementioned case law of the Supreme Court and the Supreme Administrative Court, the tax administrator should proceed in this way even if the prerequisites for the establishment of liability for tax arrears are a private law matter dealt with in the provisions of the Civil Code, while the notice addressed to the guarantor to pay the arrears is an administrative decision, The review of which is possible in the context of tax proceedings in the appeal proceedings before the appeal authority, whose decision on the matter is already final and can be challenged only by an administrative action, which does not automatically postpone the enforceability of the tax administrator’s decision.
We consider this conclusion to be highly controversial as well, since a call on a guarantor to pay a tax arrears of a legal entity is in fact a decision in a legal matter arising from private law relations. It is therefore debatable whether the judicial review of such decisions of tax administrators (and appellate authorities) should actually be carried out in the administrative courts and not by the civil courts in proceedings under Part Five of Act No. 99/1963 Coll., the Code of Civil Procedure, as amended, while the latter option would seem to us to be more logical and in practice we would therefore expect a competence dispute under Act No. 131/2002 Coll., on the adjudication of certain competence disputes.
Conclusion
It can be summarized that the unprecedented consensus of the Supreme Court and the Supreme Administrative Court on the legal opinion that the tax administrator is entitled to independently assess and decide on the liability of a member of an elected body of a legal entity for its tax arrears brings not only a certain controversy in terms of the conflict between private and public law, but also justified concerns of members of elected bodies of legal entities about the application of the legal opinion in everyday practice. For the members of elected bodies of legal persons, this legal opinion should, above all, constitute a strong warning that the negative consequences of a breach of the duty to exercise due care in the performance of their duties may arise much more frequently and more easily than was usual.
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PhDr. Mgr. Jan Ptáčník, senior attorney-at-law – ptacnik@plegal.cz
Mgr. Kateřina Vyšínová, junior lawyer – vysinova@plegal.cz
25. 7. 2024