On 13 February 2020, the Higher Administrative Court (Cour administrative) issued a ruling (docket No. 43707C) after an appeal lodged by the Luxembourg State against a judgment of the Lower Administrative Court (Tribunal administratif), which had decided, by reformation of a decision of the Director of the Luxembourg tax authorities (the “LTA”) to partially declare unjustified a guarantee call (Haftungsbescheid), issued against the former manager (the “Manager”) of a bankrupt company (the “Company”).
The tax office had issued a guarantee call, declaring the Manager jointly and severally liable for taxes on wages and salaries which should have been withheld and subsequently paid to the LTA by the Company for the years 2000, 2001, 2003, 2004, 2005 and 2006.
In accordance with the tax provisions in force, managers may be held personally liable for taxes due by the managed company, in case of wrongful misconduct in the execution of the tax obligations incumbent on them in their capacity as legal representatives of the company. These obligations include in particular the withholding and payment to the LTA of taxes due on the salaries and wages of the company’s staff, which was at stake in the case at hand.
In the first instance decision, the Lower Administrative Court made a distinction between the tax years 2000 to 2004, on the one hand, for which the Manager failed to declare the entire amount of withholding tax due on salaries, constituting misconduct on his part and justifying a guarantee call, and the years 2005 and 2006, on the other hand, for which the Manager declared withholding tax on salaries, but did not thereafter pay the entire amount of the tax withheld to the LTA. The Lower Administrative Court (wrongly) held that the report of the tax audit conducted by the tax office in 2007 for the years 2005 and 2006 did not indicate any outstanding tax, so that the Manager would not have committed any wrongful misconduct triggering his personal liability.
The Higher Administrative Court, following the appeal lodged by the State, confirms that, although the tax audit report does not retain any non-declaration or non-operation of deductions that should have been made, the full amount of the taxes withheld had not been paid to the LTA by the Company, constituting a wrongful act.
The Higher Administrative Court considers that, although it is true that, considered alone, the misconduct in relation to the incomplete declarations committed by the Manager for the tax years 2000 and 2004, given their small amounts in comparison to the amounts actually declared and paid by the Company, appears to be rather tenuous, the fact remains that, taken together with the blatant omissions of payment committed during 2005 and 2006, they are such as to justify sufficiently the finding of wrongful misconduct on the part of the Manager. It follows that the Manager's personal liability is justified for all the years in question.