As a director, you may be held personally liable for (among other things) payroll tax that has not been paid by the foundation or association.
Payroll tax not paid
One example is the case in which the Gelderland District Court decided recently. The interested party was registered with the Chamber of Commerce as chair of the foundation from September 2013 until the end of May 2015. During the same period, another director was in charge of the foundation. This director has full power of attorney.
The Utrecht Tax and Customs Administration has issued the foundation with additional tax assessments totalling over €117,000 in connection with unpaid payroll tax. These assessments are in line with the tax returns submitted. The foundation is unable to pay this amount. The Tax and Customs Administration is therefore holding the chairperson personally liable on the grounds of directors’ liability.
Directors' liability
A foundation is a legal entity. It is therefore an independent holder of rights and obligations. The tax authorities must therefore seek to recover the payroll tax from the foundation. Only if a director has acted improperly may the tax authorities hold that director personally liable, in addition to the foundation, for the unpaid payroll tax. This is referred to as directors’ liability.
Mismanagement
If the foundation had reported in good time that it was unable to pay payroll tax (notification of inability to pay), the Tax and Customs Administration would have to prove that there had been improper management. As this notification was not made, the presumption is that there has been improper management. To avoid liability as a director, the chairperson may still prove that the failure to make the notification of inability to pay was not his fault. Even if he succeeds in doing so, director’s liability is not yet averted. He must then still prove that the failure to pay the tax is not attributable to him.
The Court ruled that the chairman had not proved that he was unable to do anything about the failure to report the inability to pay. The Court therefore did not consider the evidence that the failure to pay was not attributable to him.
The chair stated that he had been asked by the director to take on the chairmanship. In doing so, he had done the director a favour. He has no knowledge of the foundation’s activities. He did, however, ask the director for an insight into the foundation’s financial position. The director kept him informed verbally on each occasion and consistently reported that everything was in order. The director did not mention that payments from the foundation’s income had been suspended and that the staff had been made redundant.
The Court has ruled that the chairperson did not fulfil his role as a director of the foundation adequately. The chairperson has not demonstrated that it was impossible for him to gain an insight into the foundation’s affairs, including its financial records.
Conclusion
As a director of a foundation – though the same applies to an association (and, in fact, any legal entity) – you have a duty to actively monitor all aspects of the foundation’s operations. If you fail to do so, or do so inadequately, you risk being held liable as a director. Often, you cannot shift this liability onto your fellow board members, the director or other people involved with the foundation or association.
In our memo Tax liability of foundation and association Here you can read about the (tax) obligations that may apply to a foundation or association.