The end of "straw men" - the Ministry of Finance tightens the rules
The long-awaited draft amendment to the Tax Ordinance (Ordynacja podatkowa) has appeared on the website of the Government Legislation Centre, and it may fundamentally change the position of people who actually manage capital companies in Poland. The draft, prepared by the Ministry of Finance, is a response to the long-standing problem of tax liability being avoided by people who de facto run a company's business but do not formally appear in its governing bodies.
The existing rules allowed a simple mechanism - people who actually made the key business and financial decisions hid behind so-called "straw men", that is, people who held positions on management boards in name only. When tax arrears arose, the tax authorities had no effective tools to pursue claims against the real decision-makers.
The amendment is directly linked to judgments of the Court of Justice of the European Union, interventions by the Ombudsman and conclusions drawn from audits carried out by the Supreme Audit Office (NIK). These three independent sources clearly pointed to the need for urgent legislative changes concerning the liability of third parties for companies' tax obligations.
For business owners, board members and people who actually manage companies, the proposed changes mean a need to thoroughly review existing organisational structures and management models. The new rules are intended to cover a much wider circle of persons than before.
Who exactly will the new Tax Ordinance rules cover?
The proposed amendment extends the personal scope of liability for tax arrears of a capital company, or a capital company in organisation, to persons who actually manage the company. This is a fundamental change, because until now liability was borne primarily by formal board members entered in the National Court Register (KRS).
According to the explanatory memorandum to the draft, the new rules are intended to hit several specific categories of persons who have so far successfully avoided liability:
- Persons who actually perform functions in the company but were appointed invalidly or defectively from a legal standpoint
- Persons acting on behalf of the company despite being removed from the register - that is, those whose mandate has formally expired but who continue to make management decisions
- Persons hiding behind "straw men" - the real decision-makers who deliberately use figureheads on management boards
- Persons hiding behind a complex ownership structure - using elaborate chains of corporate links to conceal their role
- Persons who deliberately resign from their position at a strategic moment - to avoid being linked to the tax arrears that have arisen
The last case is particularly important. The Ministry of Finance has expressly stated that if a person deliberately ceases to hold a formal position in the company on a date relevant to the attribution of liability, but continues to run its affairs, they will be liable as a person actually managing the company. This closes one of the most frequently exploited loopholes in the existing rules.
Security over assets even before a liability decision is issued
The second key change provided for in the draft is a revolutionary modification of the rules on securing the State Treasury's claims against the assets of third parties. Under the current rules, a decision on security against a third party can be issued only after the decision ruling on their liability for the company's tax arrears has been served on them. In practice, this means that so much time passes between the initiation of proceedings and the ability to secure assets that the liable person has time to dispose of their assets.
The proposed change is intended to make it possible to issue a decision on security already during the proceedings concerning the liability of third parties - in relation to partnerships, capital companies and legal entities other than capital companies. As the Ministry of Finance stresses, security will be possible "from the moment the tax authority begins to move towards specifying the third party's liability".
This means that tax authorities will gain a tool enabling them to react immediately. A person suspected of actually managing a company with tax arrears will not have time to transfer assets to other entities, make gifts to family members or take other steps aimed at frustrating enforcement. For many people who have relied on such strategies, this will be a fundamental change to the rules of the game.
Which assets may be secured?
Although the draft does not introduce a new catalogue of assets subject to security, speeding up the entire procedure means that tax authorities will be able to reach real estate, bank accounts, vehicles, shares in companies and other assets more effectively before the debtor has time to dispose of them. In practice, the effectiveness of enforcing tax liabilities will increase significantly.
A new concept of fault - due diligence instead of bad faith
The draft also introduces a fundamental change to the conditions for attributing liability for a company's tax arrears. The Ministry of Finance has clearly distanced itself from the concept of "bad faith", under which a person's liability would depend on their state of mind - that is, their knowledge and intention to breach tax law.
Instead, a standard of due diligence in conducting the company's affairs has been introduced. This means that a person managing a company - whether formally or in fact - will be liable for tax arrears arising during their period of management if they failed to exercise due diligence. The mere fact that tax arrears have arisen will serve as evidence that this standard was not met.
This is a change with far-reaching consequences. In practice, it means that people managing companies will not be able to defend themselves by arguing that they were unaware of the tax liabilities or did not intend to breach the law. It will be enough for the tax authority to show that the arrears arose during the person's period of management and that the person did not take the steps that can be expected of a diligent manager.
What do these changes mean in practice and how can you prepare?
The proposed act is to enter into force just 14 days after its publication, which leaves very little time to prepare for the new rules. For people managing companies - whether formally or informally - it will be crucial to take immediate action.
First of all, it is worth carrying out an audit of the company's management structure and making sure that the people making key business decisions hold appropriate formal positions. You should also check whether the company has any tax arrears and, if so, take steps without delay to settle them or to protect the interests of those who may be liable.
The new rules will be particularly significant for groups of companies, holding structures and any entities where actual management takes place at levels other than the company's formal management board. People performing advisory, supervisory or coordinating functions, if they de facto influence the day-to-day management of the company, may find themselves among those who are liable.
Do not wait for the new rules to come into force. If you manage a capital company, sit on a management board or actually run a company's affairs - contact our firm today. Our specialists in tax and corporate law will analyse your situation, assess the risk and propose specific solutions to protect your personal assets. Book a consultation before the new regulations take effect.
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