The personal liability of managing directors for tax obligations is a risk that is frequently underestimated in practice. Under Section 69 of the German Fiscal Code (AO), statutory representatives, including, in particular, GmbH managing directors, are personally liable where they intentionally or grossly negligently breach tax obligations and thereby cause loss to the tax authorities. Under Section 34 AO, these obligations include the timely filing of tax returns, the correct submission of tax declarations, and the timely remittance of taxes.
The case law has repeatedly given more concrete shape to these obligations: not only their active fulfilment, but also the organisation and supervision of tax compliance, form part of the core duties of managing directors. Where a managing director fails, for example, to establish a functioning Compliance Management System (CMS), or fails to identify shortcomings developing within the finance and accounting function, they may, as a result, be held personally liable. This applies even where they themselves lack in-depth tax expertise; ignorance does not exempt them from responsibility. Even where tax advice is obtained, the obligation remains, in principle, with management. Even where responsibilities are divided within management, for example where one managing director is expressly responsible for tax matters and another is not, this does not entirely relieve the other managing directors of their supervisory duties. Clearly documented allocations of responsibility, set out in the form of management board resolutions, are therefore essential, but do not, on their own, provide automatic exemption from liability.
The key legal solution lies in establishing an appropriate CMS. Such a system creates clear lines of responsibility, documented processes, sets out internal control mechanisms, and defines how to proceed in the event of problems. It not only helps identify breaches of duty at an early stage, but can also, in the event of a dispute, demonstrate that management has fulfilled its organisational and supervisory obligations. A CMS thus serves to prevent legal violations, detect them early, and respond to them appropriately. The most important objective of a functioning CMS is to avoid liability and reputational risks, as well as to ensure that employees act in compliance with the law and to protect management against organisational fault.
Various courts, such as the Nuremberg Higher Regional Court (OLG Nürnberg), in its judgment of 30 March 2022 (case no. 12 U 1520/19), have by now recognised the establishment of a CMS as part of proper management. In that judgment, regarded as a landmark decision in this field, the OLG made clear that management must take organisational precautions designed to prevent employees, and the company itself, from committing legal violations. This duty also encompasses monitoring controls, such as audits and spot checks. The Federal Court of Justice (BGH) has likewise addressed, in its judgment of 9 May 2017 (case no. 1 StR 265/16), the extent to which an appropriate CMS can have a positive, mitigating effect when determining the amount of a fine. This illustrates the enormous importance of being properly and appropriately positioned in this area, in a manner commensurate with the relevant risks.
This issue becomes particularly significant in economically challenging times. Where a company runs into a crisis, or approaches insolvency, liquidity and tax payments come into direct competition with one another. The temptation to defer tax payments is considerable, yet it is precisely in these situations that personal liability for the managing director looms. Since, in the event of insolvency, the tax office usually only recovers part of its claims, it will typically seek to offset the shortfall by pursuing the managing director personally, by way of a notice of liability. Tax arrears can thus quickly become a personal risk.
Conclusion: The liability risks under Section 69 AO should not be underestimated and can have serious personal consequences. Every managing director should be aware of the obligations arising from Section 34 AO, should clearly regulate the allocation of responsibilities within management, and should record this in writing. Above all, however, establishing an effective CMS is crucial to minimising liability risks. In practice, a CMS is now regarded as a central element of proper corporate governance. Being able to produce the corresponding documentation can prove decisive, in the event of a liability dispute, in demonstrating that a managing director has acted properly. Should you see room for improvement in this area within your company, please feel free to get in touch.
