Board Member Liability for Statute-Barred Tax Obligations of a Limited Liability Company
For nearly five years, the tax authority pursued fruitless enforcement proceedings against a company’s assets — only to turn, belatedly, to its sole director, seeking to impose joint and several liability for corporate income tax arrears that had, in the interim, expired under the statute of limitations. The Voivodeship Administrative Court in Szczecin vacated the assessments and discontinued proceedings in that part, articulating an unequivocal rule: where the underlying tax obligation of a company has been extinguished by limitation, the authority is without legal basis to transfer liability to a member of the board of directors (judgment of 3 February 2021, case no. I SA/Sz 785/20).
The judgment addresses one of the most frequently litigated intersections in Polish fiscal law: the relationship between the statute of limitations on tax obligations and the regime of third-party liability for debts of capital companies. It reaffirms a foundational principle — that board member liability under Article 116 of the Tax Ordinance Act is accessory in nature. It cannot exist independently of the tax arrears from which it derives, and it cannot survive the extinction of the principal obligation.
I. Factual Background: A Company, CIT for 2013, and Years of Ineffectual Enforcement
The limited liability company E.S. was incorporated in July 2011. In February 2013, R.M. was appointed as the sole member of the management board, serving as President for a term of three years.
In April 2014, the company filed its CIT-8 return for the 2013 tax year, declaring the amount of corporate income tax due. A corrected return followed one month later. The company failed to remit the tax by the statutory due date, prompting the initiation of enforcement proceedings on the basis of an enforcement title issued in February 2015.
Despite the measures undertaken, the enforcement authority was unable to satisfy the claim. In September 2018 — after more than three and a half years of enforcement activity — the Head of the Tax Office discontinued the proceedings, having determined that the recoverable amount would not exceed the costs of enforcement itself.
II. Nearly Six Years After the Due Date: The Authority Turns to the Director
In August 2019 — nearly six years after the statutory payment deadline for CIT in respect of the 2013 fiscal year — the same authority initiated ex officio proceedings to establish the joint and several tax liability of R.M., as a member of the management board, for the company’s tax arrears. In November 2019, the Head of the Tax Office issued a decision holding R.M. liable for the outstanding CIT, together with default interest and enforcement costs.
The authority reasoned that R.M. had served as President of the management board during the period in which the tax payment obligation fell due, and that he had failed in the course of proceedings to demonstrate the existence of any exonerating circumstances — that is, the statutory defenses available under Article 116(1) of the Tax Ordinance Act. The Director of the Tax Administration Chamber upheld the decision on appeal.
III. Article 116 of the Tax Ordinance Act: The Architecture of Subsidiary Liability
The mechanism of subsidiary board member liability for the tax obligations of a capital company rests upon Article 116(1) of the Tax Ordinance Act. Under this provision, the members of the management board of a limited liability company bear joint and several liability, with the entirety of their personal assets, for the company’s tax arrears — provided that enforcement against the company’s assets has proven wholly or partially ineffective.
This liability is not, however, unconditional. A board member may be relieved of responsibility by establishing one of three statutory defenses (przesłanki egzoneracyjne): that a petition for insolvency was filed — or composition proceedings were initiated — in a timely manner; that the failure to file such a petition was not attributable to his fault; or that he can identify specific company assets from which enforcement would enable the substantial satisfaction of the outstanding tax liabilities.
What the Voivodeship Administrative Court in Szczecin emphasized in the judgment under review, however, is of more fundamental significance: the threshold condition for the entire mechanism is the existence of a tax arrear. Third-party liability is accessory in character — it is derivative of, and wholly dependent upon, the principal obligation.
IV. Extinction of the Principal Obligation Extinguishes the Director’s Liability
In the course of judicial proceedings, the appellate authority itself conceded that the company’s CIT obligation for 2013, together with default interest, had been extinguished by limitation. In its response to the complaint, the Director of the Tax Administration Chamber moved for the complaint to be granted in that part — acknowledging that the tax arrear that would have constituted the basis for R.M.’s liability no longer existed.
The Court articulated an unambiguous rule:
“The absence of a tax arrear in respect of the entity with which the third party is to bear joint and several tax liability precludes the tax authority from initiating proceedings concerning such liability. Where, in the course of proceedings already commenced, the tax authorities determine that the tax arrear does not exist, they are obligated to discontinue those proceedings.”
The Court vacated the decisions of both instances insofar as they pertained to liability for CIT arrears and default interest, and discontinued the tax proceedings in that part pursuant to Article 145(3) in conjunction with Article 145(1)(1)(a) and Article 135 of the Law on Proceedings Before Administrative Courts.
V. Enforcement Costs: A Distinct Obligation That Survives the Principal Claim
The judgment in case I SA/Sz 785/20 is notable for a further reason — it draws a precise distinction between the fate of the tax obligation and that of the accompanying enforcement costs.
The Court endorsed the appellate authority’s position that enforcement costs constitute a separate category: a non-tax budgetary receivable to which the provisions of Division III of the Tax Ordinance Act apply. These costs do not share the fate of the principal obligation with respect to limitation; they are subject to an independent limitation regime. Given that they arose in 2015 on the basis of the enforcement title, the five-year limitation period under Article 70 of the Tax Ordinance Act had not yet elapsed at the date of the appellate decision.
The Court invoked the judgment of the Supreme Administrative Court of 12 January 2011 (case no. II FSK 1613/09), according to which no provision of the Act on Enforcement Proceedings in Administration conditions the remission of enforcement costs upon the extinction of the principal obligation by limitation. Consequently, Article 107(2) of the Tax Ordinance Act — which establishes third-party liability inter alia for enforcement costs — remained applicable, and the complaint was dismissed in that part.
VI. The Exonerating Defenses: Why R.M. Failed to Escape Liability for Enforcement Costs
Although the principal obligation had expired, the Court was required to examine the merits of the decision imposing liability on R.M. for enforcement costs — an inquiry that necessitated analysis of the statutory exonerating defenses.
Ineffectiveness of enforcement was established by the order discontinuing enforcement proceedings in September 2018. The Court observed, citing the resolution of the expanded seven-judge panel of the Supreme Administrative Court of 8 December 2008 (case no. II FPS 6/08), that the ineffectiveness of enforcement may be established on the basis of any legally admissible evidence, and that an order discontinuing enforcement proceedings constitutes such evidence. Any procedural deficiencies in the enforcement proceedings, the Court held, may be challenged only through the remedies available within those proceedings — not in proceedings to establish board member liability.
No insolvency petition had been filed. A communication from the Regional Court in Szczecin-Centrum confirmed that no such petition had been submitted as of the date of its issuance. The company, meanwhile, had ceased to meet its fiscal obligations on a timely basis as early as March 2013 — the earliest unpaid obligation being VAT for February 2013. The Court, invoking Article 11(1) and Article 21(1) of the Insolvency Law, found that R.M. — having served as President of the board since February 2013 — was obligated to monitor the company’s indebtedness and to file an insolvency petition within two weeks of the onset of the state of insolvency.
The identification of company assets likewise proved unavailing. R.M. pointed to an alleged receivable arising from the rescission of a contract for the sale of a Fiat motor vehicle. The Court determined, however, that this receivable did not satisfy the statutory requirement of real, concrete, and immediately enforceable property of ascertainable monetary value. The claim was disputed, subject to pending civil litigation, and — as the complainant himself acknowledged — the vehicle had been seized by the prosecutor’s office.
VII. Three Doctrinal Takeaways from the Szczecin Judgment for Corporate Officers
The judgment in case I SA/Sz 785/20 yields three propositions of immediate practical significance for persons serving on the management boards of capital companies.
First, the expiry of the statute of limitations on the company’s principal tax obligation extinguishes the board member’s derivative liability for that obligation and accrued interest — but not for enforcement costs. Enforcement costs constitute a distinct receivable, subject to an independent limitation period. A director who relies on limitation as his sole line of defense must be cognizant of this critical distinction.
Second, exonerating defenses must be built affirmatively and documented contemporaneously. A bare assertion that the company holds a disputed receivable is insufficient. The statute demands that the identified assets be concrete, presently existing, of ascertainable monetary value, and amenable to realistic enforcement. Receivables that are contested and subject to pending judicial proceedings do not meet this standard.
Third, the duty to monitor solvency and to file a timely insolvency petition attaches to a board member from the first day of service. In the case at hand, R.M. was appointed in February 2013; by March 2013, the company had already defaulted on its fiscal obligations. The two-week filing period under Article 21(1) of the Insolvency Law runs irrespective of whether the debtor has failed to perform all of its obligations or only some of them.
VIII. Defending Against Liability for Statute-Barred Obligations: A Practical Framework
In disputes with tax authorities concerning the liability of a board member for tax obligations of a company that may have become time-barred, several strategic imperatives emerge.
First, ascertain whether the principal tax obligation subsists at the date of adjudication. If the five-year limitation period under Article 70(1) of the Tax Ordinance Act has elapsed and no circumstances have arisen to suspend or interrupt its running, the obligation has been extinguished ex lege — and the authority lacks any legal basis to initiate third-party liability proceedings. The statute of limitations defense must be verified with precision.
Second, distinguish the principal obligation from enforcement costs. Even after the expiry of CIT or VAT obligations, enforcement costs may continue to subsist and may serve as an independent basis for liability under Article 107(2) of the Tax Ordinance Act. Defense on the enforcement-cost front requires affirmative proof of the statutory exonerating circumstances under Article 116(1).
Third, raise the statute-of-limitations defense at the earliest procedural opportunity — at the stage of the administrative appeal — and, should it be rejected, before the administrative court. In the case under review, the appellate authority ultimately conceded the point of limitation — but only at the stage of its response to the court complaint, which indicates that throughout the entirety of the administrative proceedings, the authority had maintained an indefensible position.
Fourth, secure and preserve documentation in anticipation of the need to establish exonerating defenses: records confirming the filing of an insolvency petition (or the reasons for its non-filing), a detailed inventory of company assets together with evidence of their realizable value, and materials demonstrating the absence of fault in the failure to file.
Effective representation in tax litigation concerning board member liability demands the simultaneous prosecution of two distinct lines of defense: challenging the continued existence of the principal obligation on limitation grounds, while concurrently constructing the exonerating defenses that will be required should the limitation argument fail to prevail.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
