The proposed new Tax Ordinance, currently under consultation, would change recovery of insolvent taxpayers’ debts from third parties. At present, tax authorities may assess unpaid tax against them regardless of their circumstances or involvement in the debt’s creation.
Current rules: strict liability
Under current rules, third parties also answer for a person’s tax debts where the conditions in Chapter 15 of the Tax Ordinance are met. A tax authority may issue a decision holding liable, among others:
- a former spouse, for debts arising during the matrimonial community of property;
- a family member who regularly worked with a business taxpayer and benefited from that business;
- a business purchaser who could have discovered the business’s debts by exercising due diligence.
The current Tax Ordinance provides no qualifying criterion for such liability. In practice, a former spouse, for example, must pay the taxpayer’s liability even if they had no involvement in or knowledge of the debts and are themselves in hardship.
Proposed change: manifest unfairness
The proposed changes would introduce a new rule: a third party will not be liable for a taxpayer’s debts if imposing liability would be manifestly unfair.
The tax authority would therefore have to assess in every case whether imposing third-party liability would be manifestly unfair. If it finds that charging someone another person’s tax would be manifestly unfair, for humanitarian reasons or principles of social coexistence, for example, it must refrain from issuing a decision.
The unfairness must be so clearly apparent that even a layperson could recognise it.
The authority must assess every case individually and as a whole, decide whether manifest unfairness exists and include its assessment in the decision. Difficult personal circumstances alone will not suffice: it must also examine whether the person knew, could have known or influenced the creation of the tax debt.
Because all these conditions must be met before the authority refrains from assessing another person’s tax against a third party, the new mechanism will be exceptional.
Who will no longer be liable?
The proposed changes offer hope that at least people in difficult circumstances who had no involvement in creating the tax debt will no longer be charged with it.
The bill gives the example of a management board president who, even exercising the care appropriate to the circumstances, could not have known that grounds for an insolvency petition had arisen.
Other examples might include:
- an unwitting figurehead appointed to the management board solely so that future tax enforcement could be directed against them;
- a minority partner in a partnership, for example, who was outvoted by the other partners or not informed of votes;
- a person whose details were used without their knowledge, or the former spouse mentioned above from whom the tax debt was concealed.
