At the end of February 2025, the Court of Justice of the European Union (CJEU) issued a judgment in case C-277/24, which may have far-reaching consequences for management board members in terms of liability for tax obligations of capital companies.
Judgment C-277/24
Referring to Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax in conjunction with Article 325(1) of the Treaty on the Functioning of the European Union, the right of defence, and the principle of proportionality, the CJEU ruled that national provisions and practices excluding the possibility for a third party, who may be jointly liable for the company’s tax obligations, to participate in proceedings determining such obligations are incompatible with EU law.
However, this does not affect the requirement that in any subsequent joint liability proceedings, the third party must have the right to effectively challenge the factual findings and legal qualifications made by the tax authority in the initial proceedings and to gain access to the case files, respecting the rights of the legal entity and other interested parties.
The CJEU emphasized fundamental procedural guarantees, including the right to challenge the factual and legal findings made by tax authorities and full access to case files. The new procedural standards strengthen the protection of management board members’ rights, providing them with tangible tools to effectively contest imposed tax obligations.
“[…] Article 273 of the VAT Directive, in conjunction with Article 325(1) TFEU, the right of defence, and the principle of proportionality must be interpreted as not precluding national provisions and practices under which a third party who may be held jointly liable for the tax obligation of a legal entity cannot be a party to tax proceedings conducted against that legal entity to determine its tax obligation, without prejudice to the necessity that such third party, in any subsequent proceedings concerning joint liability, must be able to effectively challenge the factual findings and legal qualifications made by the tax authority in the tax proceedings and have access to the case files, with due regard to the rights of the legal entity or other third parties.”
Why is this so important?
The CJEU ruling significantly affects all proceedings regarding the joint liability of management board members, regardless of whether they have already been concluded with a final judgment. It justifies the possibility for board members to challenge the findings of proceedings that substantively determine the VAT obligations of the companies they manage. Following its publication in the Official Journal of the European Union, it will be possible to reopen proceedings.
We already recommend implementing appropriate internal tax procedures within organizations, which, among other things, regulate the issue of management board members' liability and enable effective defence in the event of such proceedings.
However, the CJEU did not grant management board members the right to participate in proceedings concerning the company’s obligations, for which they may later be held liable. This indicates that defence against liability as a management board member should take place at the stage preceding proceedings against the company – through the implementation of appropriate due diligence procedures. The next opportunity may only arise at the stage of adjudicating their own liability, at which point preventing abuses is impossible, and the possibilities of defence against liability are limited.
