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The financial responsibility of directors for company tax debts

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It has been reported in the national press that the tax office has more than doubled its efforts to force directors of failed companies to pay the the unpaid tax debts and fines of the companies that they managed.

General tax law contains provisions that attribute financial responsibility in certain circumstances, usually when the directors have conducted the company’s affairs fraudulently or negligently.

The tax office is now using these powers and an interpretation that is very broad and is issuing demands to directors of failed companies where there are unpaid tax debts or unpaid fines.

Some directors are even receiving demands when a company has undergone a proper formal judicial liquidation process, despite the fact that the mercantile court judge has ruled that the insolvency of the company should not be blamed on the directors of the company.

This is yet another example of the increasingly aggressive and confrontational attitude of the tax office and it is a very concerning development.

The legal process to rebut claims by the tax office of personal responsibility of the directors is by no means easy, and it is expensive, very stressful and not guaranteed to work. Such cases always take years to come to a conclusion in the meantime the directors concerned could face personal financial ruin.

Whilst the tax office has been ramping up its actions against directors of failed companies, another department of Government has started taking action against directors of over 1.6 million companies that have not been filing their annual accounts in the mercantile registry.

In the past it has been all too easy for directors to walk away from failed companies and hope for the best. In the past, almost invariably, nothing happened but this is no longer the case.

The directors of companies that have failed now need to be very careful that they conduct the business of a company within the law. If there are unpaid creditors they should arrange for the orderly liquidation of the company. Otherwise they may find themselves having to defend their personal assets against attack from the tax office.

Spence Clarke & Co specialises in the provision of Spanish tax, legal, audit and accountancy services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.