Law change expands scope of people potentially liable for tax debts

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On 1 January a change to the Taxation Act entered into effect that extends the range of people that can be held liable for a company’s financial obligations to the Tax Board. 

In detail, § 40 (1-1) now leaves it open that virtually anyone, no matter their connection to a business, can be held liable for any intentional act that caused a tax debt:

If a natural person who is not a legal representative, executive manager or administrator of assets of the taxable person has actual power over the performance of the obligations specified in § 8 of this Act but whose intentional action causes tax debt he or she shall be solidarily with the taxable person liable for the tax arrears incurred. (§ 40 (1-1) of the Taxation Act) “Intentional” is an important keyword. The practice of the Tax Board shows that “intent” can be read into almost any action, and the lack of clarity what “actual power” is doesn’t help either. 

And this is why you should be worried: 

Going beyond the legalese, the change means that any investigation by the Tax Board may now include people not immediately connected to a business at all.

This can include representatives of other companies working with yours, but also anyone you ever consulted, including friends, members of your family and their friends, and virtually anyone who has ever been part to a discussion that—in the eyes of the Tax Board!—might have concerned a tax debt.

For example, imagine a business with liquidity issues, faced with the tough decision whether to pay salaries first, or tax. At this point, anyone part to any conversation about this may be investigated—given the Tax Board’s assessors identify intent. 

There is no way of knowing what exactly the Tax Board will consider to be intentional. Adding to that, there is no legal certainty here as to what “actual power” is. This is a considerable risk. 

The intent of the changed law is to make it possible for the Tax Board to go after straw men. But what it also does is create a new option for the authorities to strong-arm pretty much anyone, as the consequences of personal liability may involve the seizure of cars, homes, and bank accounts, and mean that investigators will sift through any suspect’s assets as well.

This is all still new. The eventual practice of the court is difficult to predict. And there is the risk that the Tax Board may use this new opening in the law in circumstances it wasn’t initially intended for. 

One such example is the practice of preliminary seizure, an instrument created to keep business owners from plundering the assets of companies teetering on the verge of bankruptcy. Originally expected to be applied only very rarely, it is now in much more broad use, and in many cases not to protect a company’s assets, but rather to encourage cooperation with the Tax Board.

Another risk to keep in mind here is the fact that although you can contest an administrative decision handed down by the Tax Board, the burden of proof will shift as soon as this comes up. While at first it is with the Tax Board, as soon as you go against it, you will have to prove that the decision was inappropriate.

At the end of the day, how § 40 (1-1) will affect businesses remains to be seen. But caution is certainly advised. 

If you think you can identify any potential risks, if you need help doing so, or if you have questions about this situation—any at all—, don’t hesitate to get in touch with sworn advocate Priit Raudsepp, e-mail: or call (+372) 686 0000.

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