05. May 16

GmbH managing director may be liable for tax debts

The managing director of a GmbH (limited liability company) may be personally liable for payment of the company’s tax debts if he fails to discharge his obligation to ensure the provision of funds.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: As a GmbH’s legal representative, the managing director owes a duty of care towards the company. This encompasses, among other things, ensuring due payment of public levies and taxes. By breaching this duty, he may render himself personally liable to pay damages.

This much is clear from a ruling of the Bundesfinanzhof (BFH), Germany’s Federal Fiscal Court, dated November 11, 2015 (Az.: VII B 74/15). It was said that the managing director of a GmbH has a duty to ensure the provision of funds. Accordingly, he has to make sure that sufficient financial resources are set aside, regardless of when payment of any taxes falls due.

In this case, the plaintiff had been the managing director of a GmbH since October 2009, with the latter operating as the personally liable partner and managing director of a GmbH & Co. KG (limited commercial partnership with a GmbH as general partner). Amended advance VAT returns were submitted for several months at the beginning of November 2009 as well as the first advance VAT return for October 2009. However, the amounts due were not paid by the KG. In February 2010, insolvency proceedings were commenced with respect to the assets of the KG and GmbH. The relevant tax office ultimately lodged a claim against the GmbH’s managing director for the outstanding tax liabilities, stating that he had failed to meet his tax obligations in his capacity as the GmbH’s legal representative.

The managing director’s countersuit before the Finanzgericht Düsseldorf (Fiscal Court of Düsseldorf) was unsuccessful. The FG arrived at the conclusion that the managing director had at least demonstrated gross negligence in failing to fulfil his obligation to ensure payment of taxes. The Court went on to say that the possibility of additional payments due to amended advance returns is something a diligent and conscientious managing director ought to have factored into his plans, particularly as around 70 per cent of the invoices of other companies had been paid. The Court refused leave to appeal. The managing director’s complaint before the BFH against the denial of leave to appeal also proved to be fruitless.

The Bundesfinanzhof confirmed its consistent case law, according to which it is possible for a legal representative of a company to render himself guilty before the due date for payment of the taxes of violating his duty to maintain appropriate funds. It added that he may be required to demonstrate advance planning, especially in times of crisis.

The case shows that even a managing director of a GmbH can be faced with personal liability if he fails to discharge his obligations. Lawyers who are competent in the field of company law can advise both companies and managing directors.

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