Amendments of the Tax and Social Security Procedure Code (TSSP) related to third parties liability for taxes or compulsory social-insurance contributions of legal entities

The changes implemented by the Act Amending and Supplementing the TSSPC, promulgated in the State Gazette №63/04.08.2017 aim to improve and complete the existing provisions on third party liability concerning outstanding taxes and social security contributions of taxable legal entities. The amendment of the provision of art. 19 and 20 of TSSPC is of importance for the optimization of proceedings and for defining clearly the preconditions which have to be proved so that secondary liability under the TSSC can be engaged.

The new wording of art. 19 of TSSPC expands the range of individuals whose liability can be engaged. This includes persons, who are authorized by the manager of the legal entity to govern the overall business activity of this entity, as well as the partners, shareholders and all persons acting in a secret partnership. The following persons are treated as proxies:
• A duly authorized person who, although meeting the conditions of the Commerce Act as regards the proxies, does not receive remuneration;
• Any person who has acted without representative powers, provided that the merchant has not opposed the activities of this person.

The following are added to the scope of the activities leading to engaging the liability of the representatives of the legal entities:
• Disposition of the enterprise of the taxable legal entity gratuitously or at prices much lower than market ones;
• Encumbering the property of the taxable legal entity with the purpose of securing the debt of another person and converting said property in cash in favour of the third party.

The majority owners of the capital, including majority partners or shareholders, are liable for damaging actions, where these have been carried out in pursuance of their decision. It is expressly specified that these persons should have aforesaid capacity as of the day of occurrence of the obligations of the legal entity. The liability for outstanding obligations is limited to the amount of the payments made or, respectively, the sum by which the property of the legal entity has been reduced. In this case the non-voting partners/shareholders and the ones who have voted against the respective decision are released from liability.

Liability for outstanding tax obligations and social-security contributions is envisaged in case the majority partners/shareholders transfer in bad faith holdings or shares held by them with the purpose of losing the status of majority owners. The liability is in proportion to their participation in the part of the capital which has been disposed of. This liability is furthermore borne by minority partners/ shareholders, if they, simultaneously or successively for a period of maximum three months, transfer in bad faith company holdings or shares whose total amount constitutes a majority share. In this case the minority partners/shareholders in listed companies are released from liability.

Liability for outstanding tax obligations and social-security contributions is envisaged if a person acting in hidden partnership conceals business activity through an insolvent legal entity.

In case of undeclared hidden profit distribution the owners of the capital, including partners or shareholders who have received the hidden profit, are liable for the outstanding tax obligations and social-security contributions of the legal entity. The liability is to the amount of the hidden profit received.

All paragraphs of art. 19 TSIPC implement the requirement for the presence of bad faith on the part of the liable persons. The term “bad faith” is defined in par. 5 of art. 19 of the TSIPC as conclusive presumption. Bad faith is deemed to be at hand in the following two cases:
• When the activity is performed after declaring and/or establishing the obligations – within one year of the declaration and/or issuance of the act for establishing the obligation, and
• When the activity is performed after proceedings for control of compliance with the tax and/or social-insurance laws under TSIPC have been initiated – within 6 months of the completion of the proceedings.

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