Cologne Fiscal Court, 24.10.2012, Ref.: 15 K 66/12
In accordance with § 191 Para. 1 i. in conjunction with Sections 69, 34 (1) of the German Fiscal Code (AO), the managing director of a GmbH is liable as its legal representative (Section 35 (1) GmbHG) for corporate income tax, VAT and wage tax not paid by the company if the non-payment is the result of an intentional or grossly negligent breach of the duties imposed on the managing director.
The managing director can be held liable for such a breach of duty by means of a liability notice
The breach of the following duties by the managing director may give rise to liability: Tax payment obligations, obligations to co-operate, obligations to provide information, submission obligations, notification obligations, accounting and record-keeping obligations, tax declaration obligations, etc.
In addition to the breach of an objective duty, the subjective fault of the managing director is also a prerequisite for liability. In this respect, liability only arises in the event of intent or gross negligence.
According to the case law of the Federal Fiscal Court, gross negligence is given if someone breaches the duty of care that they were obliged and able to exercise according to the circumstances and their personal knowledge to an unusually high degree.
The objective concept of negligence under civil law (Section 276 BGB), according to which only the neglect of the care required in traffic is relevant, does not apply to Section 69 AO.
Legal remedies against the liability assessment are an objection or, after an unsuccessful objection procedure, an action for annulment at the tax court.
In the above-mentioned proceedings before the Cologne Fiscal Court, the parties disputed the legality of the liability of the plaintiff as the former managing director of a GmbH.
FactsSince the formation of the GmbH in 2004, the plaintiff was one of two shareholders and at the same time the sole managing director with sole power of representation.
All company shares were sold to Mr A in a notarised agreement dated 30 December 2009. Mr A appointed himself managing director by shareholder resolution of the same date, and at the same time the plaintiff was removed as managing director with immediate effect.
Under the direction of the public prosecutor's office C, the tax offices for criminal tax matters and tax investigation C and D, together with the main customs office E, investigated the GmbH on suspicion of wage tax evasion for the years 2004 to 2006, among other things.
As a result of the joint investigation, the authorities established that the GmbH had employed an unknown number of people on its construction sites in 2005 and 2006 without drawing any social security or tax consequences.
According to the plant lists checked, the number of undeclared workers at the various construction sites of the GmbH was between 8 and 45 persons. Furthermore, between 43.9 % and 100 % of the workers registered by the GmbH were listed as marginal employees, although this was not the case according to the investigations.
The competent tax office therefore issued a liability notice to the GmbH as the employer.
Later, it also held the managing director liable in accordance with Sections 34, 69 and 71 of the German Fiscal Code (AO) for the GmbH's outstanding wage tax, solidarity surcharge and church wage tax as well as late payment surcharges.
The shareholder held liable filed an action against this and argued that the defendant could not rely on the liability notice to the GmbH to justify its liability in terms of amount, as this was not an additional claim notice.
The estimate made by the defendant was also incorrect, as he considered the wage bill to be 66.6 % of the gross profit as the net wage bill.
Cologne Fiscal Court: The Cologne tax court dismissed the action and confirmed that the plaintiff was liable for the wage tax, solidarity surcharges on wage tax and wage church taxes, for which the GmbH was held liable.
According to §§ 69 sentence 1 AO, 35 para. 1 GmbHG, the GmbH managing director is liable as a legal representative if claims arising from the tax debt relationship are not determined or fulfilled or not determined or fulfilled on time due to an intentional or grossly negligent breach of the tax obligations imposed on him by § 34 para. 1 AO.
In addition, he could also be held liable as a tax evader in accordance with Sections 71, 370 (1) No. 1 and 2 AO if he - through incorrect, incomplete or omitted information in tax returns or declarations to be submitted - obtained unjustified tax advantages for the GmbH he represented by withholding the under-declared taxes from the tax office in order to improve the company's liquidity or operating result.
Intentional tax evasion giving rise to liability always exists if the managing director pays illegal wages to the employees of the GmbH he manages.
The claim against the managing director was justified on the merits in accordance with both § 71 AO and § 69 sentence 1 AO.
In the case of wage tax evasion, the withholding tax amounts evaded through undeclared wages are decisive for the amount of his liability, which can also be estimated in accordance with § 162 AO. As a rule, this no longer requires any special justification of the discretion (BFH, decision of 2 July 2001 - VII B 345/00, NV).
Ultimately, the tax court also considered the claim against the plaintiff to be free of error from the point of view of the discretionary choice between several possible liable debtors.
Since the plaintiff had wilfully breached its obligations to withhold (§ 38 para. 3 EStG) and pay wage tax (§ 41a para. 1 EStG) and the employees were not even all known by name as tax debtors, no special justification for the discretionary decision was required.
In this respect, the discretion of the tax office was predetermined. Since the tax office had also primarily held the GmbH jointly and severally liable in addition to the plaintiff, no selection error could be established in this respect either.
Source: Cologne Fiscal Court
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