Both in administrative law and in criminal law, there is the concept of subsidiary or joint liability of the company’s administrator. This liability is not automatic for all actions of the company; rather, it is linked to what is known in law as compliance.
In administrative law, the subsidiary liability of the administrator is only used when the company has been declared bankrupt and has no assets to seize or has already been dissolved.
Requirements for the Subsidiary Liability of Administrators
According to the case law of the Spanish Supreme Court, three requirements must be met for an administrator to be held subsidiarily liable. Firstly, there must be a tax offence committed by the administered company. In other words, the administration must first initiate a sanctioning procedure in which they establish the existence of a tax infringement before they can begin to consider the subsidiary liability of the administrator.
The second requirement is the position of administrator at the time of the violation. It is irrelevant whether the administrator later resigned or ceased their function. What matters is that they were acting as an administrator at the time the violation was committed.
Finally, the demonstration of the administrator’s misconduct: The administration must prove that the administrator failed to exercise the necessary diligence in fulfilling tax obligations. In other words, the administrator must have acted negligently, failing to ensure that the company complied with its tax duties.
Compliance
Now that we understand when administrators may be held subsidiarily liable, it is also important to understand compliance and how it can help avoid such liability.
Compliance is a term that is used more in criminal law than in administrative law, but in our professional opinion it applies to both. Compliance refers to a set of measures and rules established by the administrator to ensure compliance with current regulations. If the administrator implements specific procedures to prevent employees from committing administrative violations and can prove the enforcement of these internal rules, they fulfill their duty of diligence and should not be held subsidiarily liable.
As far as tax measures are concerned, it is not sufficient to appoint a tax advisor who takes care of all tax matters. It is necessary for the administrator to carry out additional monitoring activities to ensure compliance with the tax regulations.
The concept of due supervision or due diligence of the administrator is complex and open to interpretation and legal challenge. This is why it is crucial for administrators to always maintain documentary evidence demonstrating their diligence in ensuring tax compliance. Since each case is different, there is no universal standard for what documentation should be kept.
Do you believe you may be facing a case of subsidiary liability? Do not hesitate to contact us for advice on your specific case.
Selena Escandell Beutick