Joint and Several Liability for VAT Debts: CJEU Judgment C-278/24

The judgment of the Court of Justice of the European Union (CJEU) in C-278/24 [Genzyński] addresses a critical intersection between national tax enforcement measures and EU law principles. At its core, the case examines the compatibility of Poland’s rules on joint and several liability of company directors for VAT debts with the proportionality principle, legal certainty, the right to property, and the principle of equal treatment under EU law.

The dispute sheds light on the limits of Member States’ discretion under Article 273 of the VAT Directive and Article 325 TFEU when designing mechanisms to ensure effective VAT collection. The decision provides important clarification for both tax authorities and company directors across the EU.

Facts and circumstances

The case arose from the Polish tax authorities’ efforts to recover unpaid VAT from E. sp. z o.o. (Company E.), a limited liability company. The key figure was P.K., who served as chair of the board of directors between January 2014 and September 2017.

Between May 2017 and August 2017, Company E. failed to pay VAT, leading to tax arrears. The Head of the Lower Silesia Tax Office issued enforcement orders but abandoned proceedings after determining that the company’s assets were insufficient to cover the debt.

Polish law – specifically Articles 107, 108, and 116 of the Tax Code – allows the tax authorities to hold board members jointly and severally liable for company tax arrears if enforcement against the company fails, unless the member can prove one of several grounds for exemption. These grounds include:

1. Filing for insolvency in due time;

2. Showing that failure to file for insolvency was not their fault; or

3. Identifying company assets that could satisfy the tax debt.

On 15 June 2022, the tax office held P.K. jointly liable. The decision was upheld on appeal to the Director of the Tax Administration Chamber. P.K. challenged the decision before the Regional Administrative Court in Wrocław, arguing that:

· At the relevant time, there were no legal or factual grounds to file for insolvency;

· Under Polish insolvency law, insolvency proceedings require at least two creditors, making an application purposeless when only one creditor exists;

· The authorities applied a presumption of liability without examining his conduct or fault.

The referring court saw potential conflicts with EU law, noting that Polish practice essentially forced directors to file for insolvency even where such filing would be legally ineffective (for instance, if the public exchequer was the sole creditor), and that failure to do so blocked exemption from liability.

Legal Framework

The applicable legal framework in this case combines both provisions of EU law and Polish national legislation. Under Article 193 of the VAT Directive, the obligation to pay VAT rests with the taxable person who supplies goods or services. However, Article 205 of the same directive gives Member States the discretion to hold other persons jointly and severally liable for the payment of VAT in certain defined circumstances. This discretion is further shaped by Article 273, which authorises Member States to introduce additional obligations they deem necessary to ensure the correct collection of VAT and to prevent evasion, provided these measures respect the principles of proportionality and equal treatment.

At the Treaty level, Article 325 TFEU imposes on Member States the duty to combat fraud and protect the EU’s financial interests through effective and dissuasive measures. Fundamental rights also play a central role in assessing the legality of such national rules. The Charter of Fundamental Rights of the European Union enshrines in Article 17 the right to property, in Articles 20 and 21 the principles of equal treatment and non-discrimination, and in Article 47 the right to an effective remedy – relevant here in the context of the procedural safeguards available to individuals facing liability.

Turning to the Polish legal context, Article 116 of the Tax Code establishes a mechanism whereby members or former members of a company’s board of directors may be held personally liable for the company’s tax arrears if enforcement against the company’s assets has failed, unless they can demonstrate specific grounds for exemption, such as timely filing for insolvency or showing that the failure to do so was not attributable to them. The Law on Insolvency complements this framework by imposing a duty to file for insolvency within 30 days after the conditions for insolvency arise, with insolvency presumed where the debtor’s payment delays exceed three months.

Parties’ positions and legal question

In the proceedings before the referring court, P.K. argued that there had been no legal obligation to file for insolvency during his term as chair of the board because the statutory conditions for such a filing were not met. He emphasized that, under Polish insolvency law and established practice, initiating insolvency proceedings when there is only a single creditor – in this case, the tax authority – would be legally ineffective, as the court would reject such an application. According to him, the tax authorities had relied on a general presumption of liability tied solely to the period in which the tax debt arose, without examining his conduct or establishing any actual fault on his part.

The Polish tax authority took the opposite view, maintaining that the statutory rules applied uniformly to all directors and that P.K. had not met any of the exemption conditions set out in the Tax Code. In its interpretation, even if an insolvency application were ultimately dismissed by the court, the act of filing would nonetheless satisfy the statutory requirement for exemption.

The referring court expressed doubts about the compatibility of such a system with EU law, raising three specific concerns:

1. Whether it respects the principle of proportionality when no explicit assessment of fault is required;

2. Whether it undermines legal certainty and legitimate expectations by compelling directors to undertake an insolvency filing that, in practice, would be without legal effect;

3. Whether it results in unequal treatment between directors of companies with a single creditor and those with multiple creditors.

Against this background, the central legal question referred to the CJEU was whether Article 273 of the VAT Directive, read together with Article 325 TFEU and the general principles of EU law, precludes a national system that holds company directors personally liable for VAT debts without establishing fault, and that makes exemption from such liability conditional on filing an insolvency application that would be legally ineffective in the circumstances.

The Court’s analysis

The Court first clarified that Articles 193 and 205 of the VAT Directive were not relevant here, as they concern identifying the VAT debtor for specific transactions, whereas this case involved recovering an existing VAT debt through director liability. The focus was therefore on Article 273, which allows Member States to impose additional obligations to ensure VAT collection and prevent evasion, provided these measures respect proportionality, equal treatment, and do not go beyond what is necessary.

On proportionality, the Court found that Poland’s regime legitimately safeguards VAT revenue. Presuming that directors have knowledge of and influence over company affairs is acceptable so long as this presumption can be rebutted. Directors must be able to prove either timely insolvency filing or that failure to file was not their fault. The Court stressed that a VAT debt alone does not trigger the obligation to file; the company’s financial situation must have deteriorated to insolvency. Because the system allows rebuttal, liability is not absolute.

In relation to equal treatment, the Court rejected the view that directors of companies with only one creditor are disadvantaged, as the key requirement is the act of filing for insolvency, not its outcome. Automatic exemptions for single-creditor situations, however, could encourage manipulation to avoid VAT liability and would undermine effective collection.

The Court also confirmed that the rules met legal certainty requirements: they are clear, predictable, and enable directors to foresee when liability may arise and how to avoid it.

Lastly, regarding the right to property under Article 17 of the Charter, the Court accepted that such liability affects personal assets but found the interference justified. It serves a legitimate public interest, complies with proportionality, and strikes a fair balance between public and private interests. Liability is limited to amounts unrecoverable from the company, with procedural safeguards in place.

Practical implications

The judgment carries important lessons for company directors across the EU, particularly in countries with similar rules on personal liability for tax debts. It confirms that national laws may presume directors are aware of and influence the company’s tax compliance, but such presumptions must always be rebuttable, giving directors a real opportunity to show they were not at fault.

For directors, this means that close monitoring of a company’s financial position is essential. When signs of insolvency emerge, swift action is required. Even in cases where the tax authority is the only creditor, submitting an insolvency application – although it may ultimately be dismissed – can be a necessary step to protect against personal liability. The Court’s refusal to grant an automatic exemption in single-creditor cases effectively closes a potential loophole and ensures the integrity of VAT collection.

Practical diligence is equally important. Directors should keep thorough records of all decisions and steps taken to address financial difficulties, including professional advice sought, as this documentation may prove decisive in demonstrating due care.

Although the case is grounded in Polish law, its reasoning resonates across borders. Member States must strike a balance between effective VAT collection and the principles of proportionality and legal certainty, and any director liability regime will be judged against these EU law standards.

Conclusion

The CJEU in C-278/24 confirmed that joint and several liability for directors can align with EU law, even without a strict fault requirement, if the system allows genuine rebuttal and respects proportionality, equal treatment, and legal certainty. Poland’s framework met these standards by limiting liability to unrecoverable debts, providing clear exemptions, and applying the rules consistently. For directors, the ruling highlights the need for prompt, well-documented action during financial distress; for tax authorities, it validates firm collection measures when balanced with adequate safeguards.