Liability of a representative for taxes means that a representative of a company may be jointly liable for a company’s taxes. The purpose of introducing this responsibility is that the legislature intended to prevent that representatives for companies, by failing to pay taxes on time, provides the company credit and also to prevent that the public will take the costs for the conducted business.
Section 59, part 13, the Swedish Tax Procedure Act states that if a representative of a legal person has not paid the tax or fee by intention or by gross negligence, is the representative together with the company required to pay the tax or fee. The payment obligation is linked to the time at which the tax or the fee originally is supposed to be paid. According to the rules in Section 59 in the Swedish Tax Procedure Act, this means that a representative of a company, as a general rule, are responsible for the payment but is released from liability if, before the tax should have been paid, necessary measures has been taken to bring an overall liquidation of the company, with regards to all of the creditors interests.
Who is to be considered as a representative of a company? The representative concept are not defined in law, but a representative is a natural person who has had a mission, participation or a dominant influence over the company. There is thus a broader concept and an area of application than what follows of the Swedish Companies Acts regulation regarding legal representatives. Both legal representatives and other actual representatives can thus meet the responsibility.
The conventional representative concept are defined in Section 8, Part 35-36, the Swedish Companies Act, which states that the board and the Chief Executive Officer (CEO) are the companies legal representatives.
Other actual representatives than the board and the CEO who has had a powerful position in a company and independent has been able to influence, can also be responsible. Central in the assessment is who the actual representative is and who has the actual influence over the business, position of power and ability to influence the management of the company. The person who, for example, by an power of attorney has been given the right to command over the bank’s assets, may be considered to have a controlling influence and a position of power that he or she is regarded as the actual representative
Other circumstances which in precedents has been important is whether a person represent a company externally to a customer or creditor, and has shares in the company. A holding of 25 per cent means a substantial holding, but only a signatory right miss, according to earlier precedent, importance in this assessment.
On suspicion that obligations (to the public) is not fulfilled it follows, from the status of the representative, a duty to investigate, take action and bring a rectification. It is argued in the jurisprudence that a person who is a formal representative is considered to have reason to suspect and bring action at a later stage, compared to an active representative.
Of Section 59, part 13, the Swedish Tax Procedure Act it appears that the subjective necessary condition intent or gross negligence must be met for the liability to be entered into. There is a widespread precedents of the subjective necessary conditions.
A common situation regarding the intent is that there have been liquid resources on the due date, but the payment has still not been made. Another situation is that there have been liquid resources within a short time before the due date, but the liquid resources has been used for payment liabilities other than tax liabilities. A third situation is that there has been submitted false information in the declaration.
Gross negligence has in the precedents been deemed to exist if the representative has continued the business operations, even though the representative realized or should have realized that there would be no money to tax liabilities on the due date or if the representative has not taken measures to obtain an overall liquidation of the company´s liabilities. With an overall liquidation means that an application for company reorganisation or bankruptcy has been submitted to the court before the due date of the tax liabilities. If there has been no reason to expect that the tax would be able to pay on time, there has not been a gross negligence.
Regarding the burden of proof of the subjective necessary condition, it is the Tax Agency which has to show that the subjective necessary condition are met, that is, the tax payment has not been made because of intent or gross negligence. From what has been stated above regarding when intent or gross negligence according to precedents has been considered, the Swedish Tax Agency burden of proof is fairly easy to fulfill. Regarding intent, the burden of proof has been met if it is ascertained that there was liquid resources available on the due date, but despite that any payment has not been made.
Of Section 59, part 15 the Swedish Tax Procedure Act it appears that a representative may fully or partly be exempted from a payment obligation if there is special reasons. This rule has been strictly used by the courts. Examples of situation in which adjustments has been made is related to the representatives age, illness of not passing nature, mental illness, shown unwillingness to fulfill the obligations, misleading, the representatives limited participation and position in the company.
The representative has the burden of proof to show that there is special reasons for relief from payments liabilities.
Finally, it can be stated that the law enforcement and the precedents that is referred to regarding the representative concept, means that there is a strict liability. The responsibility means that also persons who are genuine engaged in the business and without the intent to disadvantage any creditor may be liable for payment. If the representative is not prepared to take the risk of liability, the representative must apply for a financial reorganization or bankruptcy before the due date of the tax payment.