Legal representatives of a company (including de facto or apparent directors) are obliged to fulfil all tax obligations of the company they represent. They are obliged to fulfil the tax obligations of the company, in particular to submit tax returns within the statutory time limits and to pay the taxes for which the company is liable (§ 103 of the Abgabenordnung (AO) for direct taxes and § 67 et seq. of the amended VAT law of 12 February 1979 for VAT).

If the legal representative does not fulfil the company’s tax obligations, his/her personal liability may be incurred. The Tax Administration then initiates a procedure of “guarantee call” (appel en garantie).

The Tax Administration (ACD) and the VAT Administration (AED) consider in a relatively systematic way (in particular in case of bankruptcy) that the management of the company by the legal representative is to be qualified as negligent as soon as the taxes have not been paid to the administration.

A large number of appeals against these guarantee calls in guarantee have been rejected by the administrative courts. Does this mean that such appeals are automatically doomed to failure?

Firstly, it is interesting to note that the administrative courts place the burden of proof of the validity of the guarantee appeal on the Administration and not on the legal representative, who can limit himself to stating that he suspects an illegality (Administrative Tribunal 24 March 2022 n°44416).

Secondly, the case law does not consider that the simple non-payment of a tax or VAT is automatically likely to justify a guarantee call and has held that : the „simple finding of a breach of a tax obligation arising from § 103 AO“ is insufficient to engage the personal liability of the director whereas the legislator had imposed „the additional requirement of a gross negligence to perform the obligations of the company’s representative towards the tax authorities“ (Administrative Court of Appeal – Ruling no. 45435C of 3 June 2021 and Administrative Court of Appeal – Ruling no. 41334C of 6 December 2018) in accordance with the State Council’s opinion no. 7020/5 issued in the context of the bill implementing the 2017 tax reform : „personal liability can only be envisaged in the event of proven negligence or aggravated fraud, where the manager has caused, participated in, covered up or at least knowingly failed to prevent an incorrect VAT return„.

The administrative courts assess the existence or not of a wrongful negligence by the legal representative by taking into consideration the facts surrounding the allegedly wrongful behaviour of this person.

Thus, the Administrative Court of Appeal will, in appeal, overrule a judgment of the Administrative Court having found the manager’s behaviour at fault for not having sent a formal request (and certain missing appendixes) in order to have the company benefit from the tax consolidation, whereas the factual circumstances of the case had made him believe that this had been done and that the administration had given its agreement in principle (Administrative Court of Appeal 24 April 2018 n°40521C, Administrative Court of Appeal 23 January 2018 n°40142C) It should be noted that in one of the cases, the executive in question was mainly responsible for the preparation and elaboration of the main strategic and commercial decisions concerning the underlying investments of the group and, in the other case, the executive whose liability was sought was to be considered as a „normal director“ having surrounded himself with specialists in the matter.

More recently, the Administrative Court ruled that a sole director, appointed to this position in April 2018, could not be held liable for the failure to file tax returns or unpaid taxes for tax periods prior to his appointment (Administrative Tribunal 24 March 2022 n°44416). It should be noted that in this case, the sole director had even injected his personal funds into the company to avoid bankruptcy.

In conclusion, if the administrative courts have, in the majority of cases, retained the personal liability of the director, they will nevertheless take into account the particular circumstances of each case, to determine whether or not the director was at fault, and to verify whether or not this fault is causally related to the failure of the company to comply with its tax obligations.