The Court of Justice of the European Union (CJEU) has issued another judgment concerning the liability of management board members (Case C-278/24 Genzyński). As in the recently discussed case (C-277/24 Adjak), the Court provided guidance on how these liability rules should be applied by Polish tax authorities and administrative courts.

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At first glance, it may appear that the CJEU did not challenge the legality of the current practice of holding board members liable for a company’s tax debts, since it ruled that EU law does not preclude a national mechanism that imposes joint and several liability on a board member for tax arrears incurred during their term of office.

However, the CJEU emphasized that, in order to demonstrate lack of fault, a board member may successfully argue that they exercised all due diligence required in managing the company’s affairs. This significantly changes the rules of the game.

One disappointing aspect of the judgment is the statement that the fact that the State Treasury (i.e., the tax office) is the company’s sole creditor cannot be used by board members as a defense. Yet in such cases, insolvency proceedings cannot be initiated at all.

Current procedural safeguards for board members

Let us recall that the tax authority determines a board member’s liability for tax arrears by way of a decision. To be released from liability, a board member must either identify company assets sufficient to cover the arrears or prove that a bankruptcy petition was filed in due time, that restructuring proceedings were initiated, that an arrangement was approved in arrangement proceedings, or that the failure to file for bankruptcy was not due to their fault.

In practice, proving this last point is extremely difficult due to the automatic approach of tax authorities, which tend to assume that the mere existence of tax arrears is sufficient grounds for filing a bankruptcy petition, and that holding a management position implies full awareness of the company’s tax obligations.

What follows from the judgment?

It can be assumed that the CJEU judgment will have a significant impact on ongoing proceedings concerning the liability of management board members, as it allows them to invoke the fact that they exercised due diligence in managing the company and refrained from filing for bankruptcy. They will also be able to point to any relevant factors — not just financial ones — that may prove their failure to file was not due to fault on their part. The mere existence of tax arrears should now be viewed as one factor among many, rather than the decisive reason for filing a bankruptcy petition.

Internal procedures concerning tax compliance and the division of responsibilities within the organization could prove helpful for board members in this regard.

Above all, both this judgment and the one in Case C-277/24 Adjak should serve as a starting point for a thorough revision of the rules governing the liability of board members in the Polish Tax Ordinance.

If you’d like to explore the concept of due diligence in more detail – including how board members can effectively demonstrate it in practice – we encourage you to read our earlier blog post on the subject, available here: https://crido.pl/en/blog-taxes/is-it-really-worth-the-trouble-vat-due-diligence-in-poland/