(„Tax liability of a management board member for the company’s outstanding tax liabilities”)
Introduction
Being a member of a company's management board entails legal liability, including liability for tax obligations incurred during the term of office.
The liability of a management board member has undergone a significant change in light of the latest rulings of the Court of Justice of the European Union (hereinafter referred to as “CJEU”), which I will attempt to outline in this article. However, to discuss this issue, First, it is necessary to indicate what tax liability of management board members actually is.
The liability of a third person for outstanding tax liabilities.
The liability of management board members, as a third person’s liability for outstanding tax liabilities, covers not only the tax liability itself, which was not paid on time, but may also include late payment interest and enforcement costs, as stipulated in Article 107(2) Act dated 29 August 1997 - Tax Ordinance (Journal of Laws of 2021, item 1540 as amended, hereinafter referred to as “Tax Ordinance”).
This liability does not arise automatically by operation of law, but requires specification through a decision of Article 108(1) of the Tax Ordinance. It can only be borne by persons indicated in the relevant provisions, and only if the statutory criteria for liability Article 107(1) of the Tax Ordinance are met. Tax liability is accessory to the liability of the taxpayer.
This means that a necessary condition for finding a third person liable is the existence of a tax obligation incumbent on the taxpayer, whose debt is the subject of the liability. Consequently, the liability of the third person for that obligation also expires when the tax obligation expires.
Another feature of tax liability is its subsidiarity, which means that it can only be applied when the debt cannot be satisfied by the taxpayer, or when it has not been satisfied. The above universal observations are reflected in the conditions that must be met for establishing the tax liability of individual categories of persons third.
Introductory remarks on the tax liability of management board members.
The liability of management board members for the obligations of the company is regulated by Article 116 of the Tax Ordinance, which states that the members of the management board of a limited liability company, a joint-stock company or another legal person are jointly and severally liable with their entire assets for the tax arrears of the company, if enforcement against the company proves ineffective.
As can be seen from the content of the regulation in question, the liability of a management board member is subsidiary i.e., i.e. the management board member is liable only when the tax authority has established that it is impossible to recover the debt from the company in which the person was a member of the management board at the time of holding the management position.
It is also crucial to note that Article 116 of the Tax Ordinance does not make liability dependent on intentional conduct. To be liable, it is sufficient that, during the period when the tax liability arose, a request for bankruptcy proceedings was not filed in due time or a request for the initiation of restructuring proceedings was not submitted.
To be released from liability, a member of the management board must either indicate the company's assets sufficient to satisfy the outstanding tax liability, or demonstrate that a request for bankruptcy proceedings was filed in due time, restructuring proceedings were initiated, an arrangement was approved in the proceedings for the approval of an arrangement, or that the failure to file a request for bankruptcy occurred without their fault.
Until now, the prevailing view in the case law of national administrative courts has been that, in order to attribute liability to a member of the management board, it is sufficient to prove only that they performed the duties of a member of the management board at the time when the deadline for payment of the tax liability expired, which subsequently turned into the company's tax arrears, and that enforcement against the company's assets was wholly or partially unsuccessful – the so-called positive condition.
At this point, it is worth noting that the determination of the ineffectiveness of enforcement is established on the basis of any legally admissible evidence. It is not necessary for the ineffectiveness of enforcement to have a formal expression in a decision of the competent enforcement authority (see resolution 7 of the judges of the Supreme Administrative Court of 8 December 2008 reference no. II FPS 6/08).
On the other hand, the so-called negative conditions concerning the exclusion of liability of a member of the management board i.e.: the member of the management board must prove that a request for bankruptcy proceedings was filed in due time (restructuring proceedings were initiated), or that the failure to file a request for bankruptcy proceedings or the failure to initiate restructuring proceedings occurred without their fault, or indicate the company's assets from which enforcement will enable the satisfaction of the company's tax arrears to a significant extent.
Performance of the duties of a member of the management board – positive condition
Until recently, the condition of performing the duties of a management board member was treated very strictly in case law. It was understood as holding the formal powers of a management board member for a specific period, regardless of whether the management board member subject to liability actually managed the affairs of the entity in which he was a member.
The phrase "performing duties" in this case does not relate to the actual performance of these duties (see: Supreme Administrative Court judgment of 21 September 2022, reference no. III FSK 1013/21). To put it simply, "performing" means holding the position from the moment of appointment to the day of dismissal. Circumstances related to the actual performance or non-performance of these duties had practically no significance for this assessment.
Furthermore, it should be noted, as in the Supreme Administrative Court judgment of 3 February 2006, reference no. I FSK 504/05, that a management board member does not have the authority to act as a party in proceedings concerning the determination of the tax liability incumbent on the company.
Moreover, until recently, a management board member could also not challenge the findings resulting from the assessment decision issued against the company, as evidenced by, among other things, the Supreme Administrative Court judgment of 10 April 2024 reference no. III FSK 5068/21.
The above meant that, in practice, a management board member could not challenge the factual or legal findings contained in the decision issued against the company in which he held the position of management board member. As I mentioned earlier, the burden of proof for the negative conditions, which allow one to be released from tax liability, rested on the management board member.
Negative conditions
one of such grounds is the timely submission of an application for bankruptcy proceedings. In the absence of a more precise definition of this concept in tax regulations, it is generally accepted that "timely" should be understood in accordance with Article 21 of the Act of 28 February 2003, the Bankruptcy Law (i.e. Journal of Laws of 2020, item 1228 as amended - hereinafter: "Bankruptcy Law") - i.e. 30 days from the date on which the grounds for bankruptcy arose.
Article 11(1) of the Bankruptcy Law states that a debtor is insolvent if it has lost the ability to perform its due and payable monetary obligations.
According to Article 11(1a) of the Bankruptcy Law, it is presumed that a debtor has lost the ability to perform its due and payable monetary obligations if the delay in the performance of monetary obligations exceeds three months.
However, Article 11(2) of the Bankruptcy Law states that a debtor which is a legal person or an organisational unit without legal personality, to which a separate Act grants legal capacity, is also insolvent when its monetary obligations exceed the value of its assets, and this situation persists for a period exceeding twenty four months.
At this point, it should be noted that in its resolution of seven, the seven-judge panel of the NSA, issued on 10 August 2009, reference no. II FPS 3/09, stated that in each case of ruling on the liability of a management board member, the tax authority is obliged to examine whether and when the grounds for declaring bankruptcy arose.
The NSA held that the liability of a management board member can only be considered in a situation where the grounds for declaring bankruptcy have arisen in relation to the company. In turn, a management board member is only liable when they have failed to submit an application for bankruptcy or initiate restructuring proceedings within the prescribed period, or when they are at fault for failing to do so.
In the justification of the resolution, the NSA also stated that in each case of ruling on the liability of a management board member, the tax authority is obliged to examine whether and when the grounds for declaring bankruptcy arose. Only the failure to submit an application for bankruptcy within the prescribed period makes the issue of the management board member's liability under Article 116(1) of the Tax Ordinance open for consideration.
The above shows that a management board member may be liable for the company's obligations when the company's bankruptcy was not reported in due time.
Establishing the appropriate time for submitting an application for bankruptcy, within which the existence of the grounds for bankruptcy is examined, is a condition specified in the tax law, namely Article 116(1)(1)(a) of the Tax Ordinance. This is a factual circumstance that should be established during the evidentiary proceedings.
For a management board member to successfully avoid liability for the company’s tax arrears, they must demonstrate that they were not at fault for failing to file a bankruptcy application for the company in a timely manner. The absence of fault, as referred to in Article 116(1)(1)(a) of the Tax Ordinance, applies only when a management board member, while exercising all due diligence in managing the company’s affairs, failed to file such an application for reasons beyond their control.
To demonstrate this exculpatory ground releasing a management board member from liability for the company’s obligations, it is not enough to have a subjective feeling of not being at fault for failing to file a bankruptcy application. As shown in the NSA judgment of 30 March 2022, reference no.
III FSK 3766/21, the absence of such fault is an objective category, and it can only be invoked when the management board member had no possibility of managing the company’s affairs, and this lack of possibility resulted from reasons entirely beyond their control.
The ineffectiveness of enforcement, as referred to in Article 116(1) of the Tax Ordinance, applies to two cases.
The first case concerns a situation where compulsory proceedings were initiated against the entity obligated to make the payment, but these proceedings did not achieve their intended purpose, as they did not lead to the performance of the obligation being pursued.
The second example occurs when the debtor’s financial situation is so poor that it is obvious that there is no prospect of success in the enforcement proceedings.
CJEU case law
It should be noted that the CJEU, in its judgment of 27 February 2025 C-277/24 (Adjak case), held that: Article 273 of Directive 2006/112 of 28 November 2006 concerning the common system of value added tax and Article 325(1) of the Treaty on the Functioning of the European Union, the right to defence and the principle of proportionality must be interpreted in such a way that: they do not preclude national legislation and practice under which a third who may be held jointly and severally liable for the tax liability of a legal person, may not be a party to the proceedings against that legal person to determine its tax liability, without prejudice to the need for that third to be able, in any proceedings brought against it in respect of joint and several liability, effectively to challenge the factual findings and legal assessments made by the tax authority in the first proceedings and to have access to the documents in those proceedings, while respecting the rights of the legal person or other third.
In its judgment of 30 April 2025 C-278/24, in the Genzyński case, the CJEU held: Article 273 of Directive 2006/112 of 28 November 2006, concerning the common system of value added tax, as amended by Directive 2018/1695 of 6 November 2018, in conjunction with Article 325 of the TFEU, must be interpreted in such a way that it does not preclude a national mechanism whereby: a member or former member of the management board of a company with a value added tax liability is jointly and severally liable with that company for tax arrears arising during the period in which he held that office, that liability is limited to those tax arrears in respect of which enforcement against the company has been wholly or partly unsuccessful, exemption from that liability depends in particular on the member or former member of the management board providing proof that an application for the winding-up of that company was submitted in good time or that the failure to submit that application was not his fault, provided that that member or former member can effectively rely, in order to demonstrate the absence of fault, on the fact that he exercised all due care in the management of the company in question, and that the member or former member in question cannot, for that purpose, confine himself to stating that, at the time when the permanent insolvency was found, the only creditor of that company was the State Treasury.
In the Adjak case, the CJEU emphasised the need for and justification of a mechanism for tax liability for the tax arrears of a corporate taxpayer, as a means of ensuring tax collection. In the Genzynski case, however, the CJEU did not find that the Polish regulation on the tax liability of a management board member based on Article 116 of the Tax Ordinance was based on the principle of risk.
The CJEU pointed out that the tax liability of management board members in the Polish legal system is not random, and it is possible to be released from liability by demonstrating the absence of fault on the part of the member of the board.
It was noted that this possibility is not theoretical, and the absence of fault can be proven by a member of the board when they exercised due diligence in the management of the company's affairs, see the Genzyński ruling.
In that ruling, the use of a presumption was approved, according to which a member of the board of a company has or should have both direct knowledge of the company's activities and influence on those activities.
It is also necessary for this presumption to be rebuttable, which in Polish practice is served by the exculpatory condition of the absence of fault.
A common denominator of the aforementioned rulings of the Court is the emphasis on the need to ensure the right to defence for a member of the board.
In the Adjak case, the CJEU stated that: "...the final nature of an administrative decision cannot justify a violation of the very essence of the right to defence. It cannot therefore be assumed that, because of the final nature of the decisions issued in related administrative proceedings, the tax authority is exempt from the obligation to inform the taxpayer of the evidence, including evidence from those proceedings, on which it intends to base its decision against him, thereby depriving that taxpayer of the right to effectively challenge, in the proceedings against him, those factual findings and legal qualifications (see similarly, ruling of 16 October 2019, Glencore Agriculture Hungary, C-189/18)".
A member of the management board has the right to invoke circumstances demonstrating that they were not at fault for failing to submit the application within the prescribed time, to show that the failure to submit the application occurred for reasons beyond their control. The points raised in the cited judgments of the Court of Justice of the European Union have already been noted and adopted in the national case law of the administrative court.
Case law of the Supreme Administrative Court following the judgments of the Court of Justice of the European Union
In its judgment of 22 August 2025 reference no. III FSK 4259/21, the Supreme Administrative Court explained that in proceedings brought under Article 116(1) of the Tax Ordinance, concerning the liability of a member of the management board, the member should have the opportunity to challenge the factual findings and legal qualifications made by the tax authority in the proceedings determining the tax liability of the company.
In this ruling, the NSA clarified that: the right of a management board member to raise objections, as indicated by the analysis of the CJEU judgment in the Adjak case, relates not so much to the assessment decision directed at the company, but to the factual findings and legal qualifications confirmed therein.
The tax authority, when establishing the facts in the proceedings concerning the liability of a management board member, may (and should) on the one hand refer to the factual findings and legal qualifications made in the assessment proceedings directed at the company.
However, these do not bind the tax authority in the proceedings concerning the liability of the management board member, nor do they relieve it of the need to conduct evidentiary proceedings within this procedure.
For this reason, in the light of EU law, the assessment decision directed at the company in the proceedings concerning the liability of a management board member may only constitute evidence of the circumstances stated therein, and the possibility of presenting counter-evidence in this respect must not be excluded (which would be the case if it were given the binding effect of a prejudicate, as has been the case in the past practice of applying Article 116 the Tax Ordinance).
On the other hand This also means that a management board member may raise objections in a justified manner only against those factual circumstances and legal qualifications that have been confirmed in the assessment decision directed at the company and which are to constitute the basis of his liability for the company's tax arrears.
He does not, however, have the right to raise objections that would be available to the company in relation to that decision (e.g. of a procedural nature).
The link between the assessment proceedings conducted against the company and the proceedings concerning the liability of the management board member is not the decision itself determining the amount of the tax liability, but the factual circumstances and legal qualifications confirmed therein.
This status does not change, even if a judgment of the administrative court has been issued in relation to the assessment decision directed at the company.
If a management board member has the right to raise objections to the factual findings and legal qualifications confirmed in the assessment decision directed at the company, then this right is accompanied by (instrumental to it) the right of the management board member to access the files of the assessment proceedings conducted against the company, but only to the extent necessary to enable the management board member to challenge the factual and legal findings that affect the determination of the existence and amount of the tax liability for which the management board member is to be liable.
It should be noted that a member of the management board cannot effectively initiate a review of the tax proceedings conducted against the Company, as evidenced by the NSA judgment of 7 May 2025. I FSK 1703/21.
The tax authority’s obligation to examine and address, in the proceedings conducted against a third, the factual or legal findings set out in the assessment decision, arises when the entity liable for the tax raises such objections, as evidenced by the NSA judgment of 5 March 2025 reference no. III FSK 1561/23.
In its judgment of 12 June 2024 reference no. III FSK 605/24, the NSA drew attention to another procedural aspect of ensuring the possibility of defence for a member of the management board. Specifically, it pointed out that the minimum requirement is to provide the third liable for the tax with an opportunity to become acquainted with the content of the assessment decision issued against the Company.
In its judgment of 13 August 2025 reference no. III FSK 656/25, the NSA indicated that a former member of the management board – in order to reduce or eliminate their liability for tax debt – must demonstrate the existence of evidence or factual circumstances previously unknown to the tax authority or overlooked by that authority in the proceedings conducted against the company, the consequence of which was: improper application or incorrect interpretation of the provisions of substantive law forming the basis for the decision determining the company's tax liability; or improper assessment of the existence or non-existence of the under Article 116 of the Tax Ordinance, grounds for a decision on the liability of the third third person.
Impact of the CJEU judgment on Polish case law
In summary, the above indicates the impact of two CJEU judgments on the case law of national administrative courts. These judgments led to a departure from the earlier concept, according to which the assessment decision issued against the company was treated as absolutely binding and not subject to verification in the proceedings conducted against the third third person.
At the same time, these judgments did not find any inconsistency with Community law in the national regulations and the practice of their application, in the remaining scope presented earlier. The above primarily concerned the justification for maintaining in the Polish legal order an institution serving to protect the fiscal interest by allowing for the establishment of joint and several liability, in addition to the taxpayer, also for a person holding management functions in the company that is the taxpayer.
Both CJEU judgments introduced the following standards and possibilities for members of the management board to defend their rights:
The right to raise objections to the tax authority's findings regarding the company's arrears; a member of the management board may challenge the facts and legal qualifications, but not the company's decision itself.
The right to access the company's case file, subject to the limitation to the evidence necessary to defend one's own liability.
A member of the management board may be relieved of liability if they can demonstrate that they were not at fault for failing to file for the company’s bankruptcy, provided that they exercised due diligence and the failure to file was due to objective obstacles.
The need to align Polish regulations with the case law of the Court of Justice of the European Union.
In line with the aforementioned landmark rulings of the CJEU, the draft Act amending the Act was published on the Government Legislation Centre’s website 19 March Tax Ordinance (UC138). The draft provides for strengthening procedural guarantees for persons held liable. This is a response to the conclusions arising from the case law of the Court of Justice of the European Union, in particular from the judgments in the cases of Adjak C-277/24 and Genzyński C-278/24.
A tax decision issued against a company will no longer determine the outcome of proceedings against a member of the management board. This means that the third person will have the right to challenge the factual findings and legal qualifications that formed the basis of the original decision. The new regulations are intended to allow the third person to have access to the documents of the tax proceedings conducted against the company, subject to the protection of trade secrets.
Summary
The CJEU judgments of 2025 do not abolish the liability of management board members in principle, but they change the possibilities of defending their rights. This is a departure from the previous approach, where the management board member had no influence on the findings related to the decision against the company.
This practice has been challenged by the CJEU, which has advocated for the right to defence, which should not be illusory.
In its case law, the CJEU has signalled that there are currently insufficient procedural guarantees in the area of liability of management board members, which, according to the announcements of the Ministry of Finance, should be regulated, as evidenced by the draft Act amending the Act Tax Ordinance (UC138).
Summary:
The 2025 case law of the Court of Justice of the European Union does not eliminate, as a rule, the liability of management board members for a company’s tax arrears, but significantly redefines the scope of their defence rights. It departs from the previous approach, under which board members had no influence over determinations made in proceedings against the company.
The Court has challenged this practice, emphasising that the right to a defence must be effective rather than illusory. Its judgments indicate that the current framework lacks adequate procedural safeguards. According to the Ministry of Finance, these deficiencies are to be addressed through amendments to the Tax Ordinance Act, as envisaged in draft legislation (UC138).