A precedent-setting judgment of the CJEU on the powers of members of the management board of companies jointly and severally liable for tax obligations - an analysis by JLSW.

Relevance for the Wider European Area

This case highlights a broader issue of procedural fairness in tax liability cases across the EU. It sets a precedent for ensuring that individuals facing financial liability for corporate debts have the right to a fair hearing, access to evidence, and the ability to challenge tax authority decisions. Other EU countries with similar rules may need to review their legal frameworks to ensure compliance with principles of effective judicial protection and due process under EU law.

Content of the preliminary question

The Regional Administrative Court in Wrocław submitted a preliminary question to the CJEU in this case. The court pointed out that in practice, a board member is deprived of the right to an effective defense regarding the existence of a tax liability for which he is to be held liable with all his assets, jointly and severally with the company. The Regional Administrative Court in Wrocław pointed out that a member of the management board is unable to effectively challenge the allegations regarding the company’s tax liabilities, both in the proceedings conducted against the company and in the proceedings concerning their own liability. This is due to the fact that a member of the company’s management board cannot be a party to the proceedings under Polish law.

Assessment of the compliance of Polish law with European Union law

The CJEU ruled that, in principle, EU regulations do not preclude national regulations and practices according to which a third party (in this case: a member of the management board) who can be held jointly and severally liable for the tax liability of a legal person cannot be a party to proceedings brought against that legal person for the purpose of determining its tax liability – the Court found the Polish legal provisions in this respect to be in compliance with EU law.

One might get the impression that the CJEU is blocking the way for board members to defend their rights in proceedings concerning their joint and several liability with the company. However, the Court stated that, regardless of local regulations and practice, board members should be able to effectively challenge the factual findings and legal classification made by the tax authority in proceedings against the company and have access to its files in proceedings against them. However, Polish law does not provide for such a procedural guarantee.

Does the CJEU judgment of February 27, 2025, provide grounds for the resumption of proceedings?

In the judgment in question, the CJEU clearly questioned the system of conducting proceedings on companies’ tax liabilities with regard to the joint and several liability of management board members for these liabilities. However, does the precedent-setting ruling also apply to proceedings that were completed before the date of its issuance?

Opinions on this matter indicate that the consequence of the discussed judgment, in the long term, should be a change in national regulations. However, it is not impossible that attempts will be made to reopen proceedings that ended with rulings unfavorable to board members, based on the arguments presented in the aforementioned precedent-setting CJEU ruling. This ruling may also have an impact on ongoing proceedings.

It should be emphasized that currently, board members are not even aware of the proceedings against the company, as they no longer hold any positions on the board, which, however, does not release them from joint and several liability. A decision issued in such proceedings against the company may constitute a prejudgment, i.e. the basis for a decision in proceedings for joint and several liability. A board member is held financially liable on the basis of this decision, but cannot effectively challenge the findings contained in the decision, he can only present grounds for excluding liability, e.g. demonstrate that a bankruptcy petition was filed in a timely manner or prove that such a petition was not filed in a timely manner for reasons not attributable to the member of the management board.

Consequences of the ruling for members of company management boards

It may turn out to be groundbreaking for those concerned that the CJEU has explicitly confirmed that the current shape of Polish regulations concerning the joint and several liability of a management board member does not provide him or her with an effective possibility of defense. An effective defense should consist of procedural guarantees in the form of the possibility of questioning factual and legal findings, as well as access to the company’s case file. Polish regulations do not grant such rights to members of the management board, who are jointly and severally liable for tax obligations. Such protection has also not been provided by the practice of tax authorities or administrative courts. In the long term, therefore, the question of changing the relevant provisions of Polish law, which remains unanswered for the time being, becomes legitimate.

Summary

The CJEU judgment of February 27, 2025, can certainly be considered a precedent. By indicating the procedural rights that a member of the company’s management board should have in taxation proceedings, the Court has made it clear that Polish regulations do not establish such guarantees. Although the mere non-attribution of the status of a party to the proceedings to a member of the management board jointly and severally liable with the company is not incompatible with European Union law, in the opinion of the CJEU such a member of the management board should be guaranteed the possibility of actively defending his or her rights and inspecting the case file. However, the Court’s ruling opens the way for board members against whom unfavorable judgments have been handed down to resume proceedings that have already been completed, as well as offering a chance to turn the tide in ongoing proceedings.