Dormant companies: default tax assessments, 20% tax surcharges and the risk of directors’ liability

Many companies cease trading without being formally wound up. Since they no longer generate turnover, it is assumed that they no longer have any tax obligations either. In practice, things often turn out differently.

Inactivity does not end a company’s tax obligations

If corporate income tax returns are not filed, the tax authorities may issue a default assessment. They then determine the taxable base themselves, for example using estimates or statutory minimum taxable bases. The result: a tax assessment, even where the company no longer generates any turnover. The consequences do not necessarily end there.

Tax surcharges can quickly add up

In the event of repeated failures, a 20% tax surcharge may be imposed under the applicable scale. Further infringements may lead to an even higher percentage. If this happens over several consecutive years, tax debts can quickly reach substantial amounts.

An overlooked assessment can be difficult to correct

Tax assessment notices are also often made available digitally through MyMinfin or eBox. Anyone who does not actively monitor these communications risks allowing the one-year objection period to expire unnoticed. Once that period has expired, the options for having the assessment corrected are much more limited.

The director’s personal assets may also be at risk

What can happen next?

• tax debts continue to accumulate;
• late-payment interest and recovery costs are added;
• the tax authorities may take recovery measures;
• and, in some cases, bankruptcy may ultimately follow.

Even then, the consequences do not necessarily end there.

The bankruptcy trustee examines how the company was managed and may investigate whether manifestly gross misconduct contributed to the bankruptcy. Where the statutory conditions are met, a director may be held personally liable for all or part of the company’s liabilities. These may include the accumulated tax debts and surcharges.

What began as a tax debt in a company with no turnover can therefore ultimately put the director’s personal assets at risk.

This scenario occurs regularly in practice, particularly where tax communications have gone unattended for several years.

Contact

Are you facing a similar situation, or would you like to prevent tax debts from accumulating further? Contact our corporate and business law team at info@fairway.law.