On 27 February 2025, the Court of Justice of the European Union (CJEU) handed down a decision on the procedural rights of administrators which may be held jointly and severally liable for the VAT debts of the companies they administer.
As a reminder, many Member States including Luxembourg provide that company administrators or managers may be found jointly and severally liable in their personal capacity for the VAT debts of the companies they administer. Such liability is usually established in separate proceedings, following a final determination of the company’s VAT liability.
In the case at hand, Polish law prevented a company administrator that could be held jointly and severally liable for the VAT debts of a company from participating in the tax proceedings brought against the legal person. The national court referred a preliminary question to the CJEU asking whether such limitation was contrary to Article 325(1) of the Treaty on the Functioning of the European Union, the rights of defence and the principle of proportionality.
In its judgment, the CJUE confirmed that Member States have a wide discretion in ensuring the collection of VAT. On the other hand, the CJEU recalled that the right of defence is a general principle of EU law.
In the case at hand, the joint and several liability proceedings did not enable the administration, as a third party to call into question the amount of tax debt and therefore undermined the rights of the defence of the administrator, according to the CJEU. In addition, the Polish administrator was not allowed to participate in the proceedings brought against the company.
On this latter point, the CJEU concluded that this exclusion from the company’s proceedings was not precluded under EU law in so far as the administrator can, during his joint and several liability proceedings brought against him, effectively call into question the findings of fact and the legal classification made by the tax authority in the context of the proceedings against the company and has access to the tax administration file.
As a reminder, under Luxembourg law, the collection of VAT from an administrator can occur by the emission of a “bulletin de garantie” in accordance with Article 67-1 and following of the law of 12 February 1979 on value added tax dated which enables the Luxembourg VAT administrator to recover the company’s VAT debt from the administrator in his personal capacity.
The conclusion of the CJEU seems to be compatible with the approach under Luxembourg law regarding the “appel en garantie” in the field of VAT which was recently confirmed by the Luxembourg Court of Appeal (CA). In its 2023 decision (CAL-2022-00375), the CA confirmed that an administrator cannot challenge the validity of the VAT assessments issued to a company in the context of his subsequent joint and several liability proceedings (appel en garantie) because he could have, as representative of the company at the time of their issuance, challenged the lawfulness of the company’s VAT assessment. In other words, if the administrator had the opportunity, indirectly through the company that he represents and controls, to challenge the findings of fact and legal classification made by the VAT authority that subsequently formed the basis of the joint and several liability proceedings, his rights of defence would not be unduly restricted.
It remains that, the CA refused to refer the question to the CJUE for confirmation, and did not explore how an administrator who was not in charge of the company at the time of issuance of the VAT assessments would be entitled to challenge the findings of fact and the legal classification made by the tax authority forming the basis of the proceedings against him.
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