Is the CEO by default liable for tax offences?

Let’s start with a story that actually happened.

The President of the one-person Management Board of a limited liability company was convicted of misrepresenting in VAT-7 returns the value of input tax based on purchase VAT invoices that the company did not have in its possession at the time of the tax inspection.

In the appeal, the defence pointed out that the Court of First Instance failed to take into account that although the accused, as the company’s representative, signed VAT-7 declarations submitted to the Tax Office, he could not have been aware that they were unreliable. It was pointed out that the defendant, as a professional with many years of experience, was offered the position of President of the Management Board and his task was to be, and in fact was, to work out the company’s development strategy. The defendant came to the company at a time when the company had already had its accounts organised for many years and a financial director responsible for such duties as supervising the accounting service. The president was not in fact responsible for this part of the company’s business, no VAT purchase invoices passed through the president’s hands, he did not draft VAT-7 declarations, and he did not have access to the accounting system. The accounting department did not communicate any VAT accounting problems to the defendant, and the company conducted real production business. In other words, the president had full confidence in how the tax returns were prepared and did not even have any reason to suspect that something might be wrong.

The Court of Second Instance, without referring to the above circumstances, assumed that the liability of the defendant was established pursuant to Article 9 § 3 of the Code of Criminal Procedure, whereby a perpetrator who, according to a provision of law, a decision of a competent authority, an agreement or actual performance, deals with economic affairs, in particular financial affairs, of a legal person, is liable for fiscal offences or fiscal transgressions. At the same time, the Court argued that the accused acted as the president of the management board, which under Article 201 § 1 of the Commercial Companies Code makes him responsible for the economic affairs of the company, all the more so as the defendant signed unreliable tax declarations.

It is difficult to find acceptance for this approach to fiscal criminal liability.

The courts of both instances in this case assumed, as it were, by default liability for a fiscal offence solely because a person, in his capacity as President of the Management Board, subscribed his signature to VAT-7 declarations. The circumstances pointing out that the President of the Management Board was not aware of the unreliability of these declarations were completely ignored. Meanwhile, the criminal fiscal offence charged against the defendant features intentionality, which consists in the fact that the perpetrator wants to commit an offence or foresees that by his conduct he may commit an offence and agrees to it. In our case, the president of the limited liability company would have had to be at least aware that the VAT-7 declarations prepared by the accounting department could be unreliable and, by signing them, he consented to a settlement inconsistent with the provisions of tax law. The courts were therefore not exempt from confronting the circumstances and arguments implying that the president was not aware of the unreliability of the VAT-7 declarations he signed and was actually responsible for submitting the false declarations.

It turns out that such cases are not infrequent and are still ongoing, as confirmed by a recent Supreme Court judgement, in which it was pointed out that ‘a fiscal offence under Article 56 § 1 of the Code of Criminal Procedure may only be committed intentionally with direct or possible intent. At the same time, it is evident that the mere determination that a specific person as the president of a company’s management board possesses an attribute allowing him or her to be held liable for fiscal penal liability in a situation where the taxpayer is a legal person (Article 9 § 3 of the Code of Criminal Procedure) does not mean that he or she can be default be attributed with the implementation of the features of the subjective side of the prohibited act” – judgment of the Supreme Court of 25 May 2023, case docket no. II KK 52/23.