03_2017 Penal and fiscal liability of members of the management board of capital companies
Legislative changes in tax law introduced during the last year clearly demonstrate the main objective of the Ministry of Finance that is closing the loopholes in the tax system and improving the tax collection, while introducing harsher penalties for non-compliance with the tax law provisions at the same time. Apart from changes in the legislation, there are also plans to intensify tax controls.
As it follows from the statements made by a representative of the Ministry, the controls ought to be intensified especially in relation to large entities, often centered in capital groups and usually operating in the form of capital companies.
Capital groups (i.e. joint stock company and limited liability companies), unlike partnerships, constitute a separate holder of rights and obligations and have legal personality, also on the tax and legal grounds. This means that only a company acts as a tax remitter.
At the same time however, Polish penal and fiscal law, including the list of penalties, is structured in a way that only natural persons (not legal persons) may be held liable. Pursuant to the Penal and Fiscal Code (hereinafter referred to as thePFC), the penalties applied for the perpetrated crimes include: fine, restriction of liberty and deprivation of liberty. At the same time the code provides for a wide range of punitive measures, such as:
- voluntary submission to liability;
- forfeiture of items;
- collection of monetary equivalent of the forfeited items;
- forfeiture of material benefit;
- collection of monetary equivalent of the forfeited material benefit;
- ban on engaging in a certain business activity, pursuing a certain profession or occupation of a specific post;
- making the sentence publicly known;
- deprivation of public rights.
As a consequence, also members of the management board may be held liable for any fiscal crimes and offences perpetrated by capital companies pursuant to Article 9 § 3 of the PFC, under which a person who handles economic (in particular, financial) matters of a legal person on the basis of law, decision of a competent authority, agreement or actual execution will be also held liable as a perpetrator.
The matter is further complicated by the fact that members of the management board are entitled to perform all the so called ordinary management activities. The term, given the lack of its legal definition, is usually understood as all activities undertaken in the ordinary course of the company's business. Although the scope is closely related to the nature of the company’s business, one can definitely say that drawing up and signing of the company’s tax settlements falls within the scope of ordinary management activities.
In this context, the lack of precise distribution of functions within the company’s business may lead to a situation where members of the management board of a capital company face charges which should be rather presented to a person actually involved in making decisions leading to irregularities in tax settlements. In practice, this may result in accusing a member of the management board of fiscal crime or offence.
Members of the management board of capital companies are particularly exposed to the following charges:
- provision of an untruth, concealment of the truth or failure to observe the obligation to inform about a change in data provided in declarations or statements which may result a decrease of in tax receivables
- failure to keep or store (accounting, tax) records in a proper place,
- keeping the records in an unreliable or defective way,
- untimely payment of tax by a tax remitter,
- infringement related to identification application or updating application.
Whereas most of these activities are punishable by fine exclusively, in the case of untimely payment of tax by a capital company as a tax remitter, it will be also possible to impose a penalty of deprivation of liberty.
In order to reduce the risk of fiscal and penal liability, it seems right to strictly limit the scope of responsibility of individual persons holding managerial positions in the company by means of (for example) internal regulations, resolutions, or specifying the scope in an employment contract or a civil-law agreement (for example in a managerial contract) concluded with a member of the management board. In addition, it seems appropriate to introduce relevant control mechanisms to reduce the risk of tax law violations.
Contact:
Michał Zwyrtek, senior mananger, Tax, PwC
Radoslaw Baraniewicz, manager, Tax, PwC
Olga Jedrzejewska - consultant, Tax, PwC
