Review of representative liability under tax law. With a focus on exemption and respite (2018:14)
The Swedish Agency for Public Management (Statskontoret) has been commissioned by the government to review the provisions in the Swedish Tax Procedures Act (2011:1244) on full or partial exemption from representative liability and on respite for the common good. The purpose is to analyse whether the application of these provisions has been too tough and to consider the need for changes that reinforce legal security, increase predictability and improve the conditions for enterprise. Statskontoret’s assignment is not to review the entire regulatory framework on representative liability, but is limited to these provisions on exceptions to the rules.
Briefly, the rules on representative liability mean that a representative of a company or an organisation may be liable to pay the amount of tax together with the company or the organisation, if this person intentionally or through gross negligence fails to pay tax at the right time and in the right way. In this context representatives are all Board members and other executives, for example the CEO.
The Swedish Parliament’s announcement and the Swedish Tax Agency’s assignment
In an announcement in 2014, the Swedish Parliament requested that the government review the rules on representative liability and whether the application of the provisions has been too tough, and whether the provisions should be changed to increase legal security and predictability, to improve the conditions for starting, running and developing a business and to reduce the risks that sustainable businesses might be closed down unnecessarily. The Swedish Tax Agency was given a government assignment in 2015 about representative liability under tax law. The report states, among other things, that the agency works actively to ensure that sustainable businesses that have suffered a temporary cash flow crisis will have an opportunity to resolve the cash flow crisis without the business being declared bankrupt or the representative risking representative liability.
Grounds for exemption require clarification in legislation
Statskontoret’s analysis shows that representatives of businesses are uncertain about what applies as grounds for exemption for representatives. To some extent, the Swedish Tax Agency’s administrators are also uncertain about this. Statskontoret therefore suggests that the text of the act (Chapter 59, Section 15 of the Swedish Tax Procedures Act (2011:1244)) be amended in order to reflect the legislators’ intentions more clearly:
If special reasons exist, the representative may be exempted either fully or partly from the liability to pay.
If reasons exist to do so, the representative may be exempted either fully or partly from the liability to pay.
Statskontoret suggests that the government take a view on the most suitable way to specify the application of the Act. One alternative is that the Swedish Tax Agency is commissioned to do this, for example by issuing regulations.
The provision on respite does not need to be changed
Statskontoret considers that the Swedish Tax Agency is probably not applying the respite provisions too harshly in relation to the rules in force. But Statskontoret also considers that the application involves a certain risk that sustainable businesses may be discontinued.
We consider, however, that the provision on respite does not need to be changed and are therefore not submitting any suggestions about this. We will, however, describe alternative courses of action in the event that the government does wish to adjust this provision. One alternative is that the Swedish Tax Agency grants respite if it “not to the detriment of the common good” instead of only when it is “to the benefit of the common good”. Another alternative is that the Swedish Tax Agency introduces an automatically extended deadline after a due date has been passed, in order to allow scope for negotiation and an opportunity for businesses to conduct a dialogue with the Swedish Tax Agency.
The Swedish Tax Agency needs to improve its case management
It can be difficult for an individual business operator to predict what the Swedish Tax Agency will conclude in cases about representative liability. Statskontoret therefore suggests that the Swedish Tax Agency improve transparency in the agency’s case management by making it possible for the Swedish National Audit Office, for example, to follow up on the assessments that the agency performs on exemption from the liability to pay.
The Swedish Companies Registration Office and the Swedish Tax Agency need to improve information to business operators and Board members
Statskontoret considers that there is not sufficient information about representative liability that is adapted for individuals and business operators who do not have special legal competence. Statskontoret therefore suggests that the Swedish Tax Agency and the Swedish Companies Registration Office improve their information initiatives in several ways in order to enhance legal security, improve predictability and improve the conditions for enterprise.