A holding company and its director and major shareholder are being held liable for a VAT debt incurred by a subsidiary of the holding company. The VAT debt amounts to just over one million euros. They are contesting the liability claim, arguing that the debt is time-barred. How will the Court of Appeal rule?
Second mortgage for the holding company
A private limited company has purchased a number of properties for the development of a property project. The purchase was financed by a mortgage loan from a bank. The local authority amends the local plan, as a result of which the project is cancelled and the value of the properties falls. The private limited company subsequently stops making repayments on the debt to the bank. The bank is prepared to continue the loan on condition that the private limited company is sold to a new owner. The holding company purchases the shares in the private limited company for one euro and takes over a claim of €1.5 million held by the former shareholder against the private limited company, also for one euro. The holding company becomes a director of the private limited company. The private limited company creates a second mortgage on the properties in favour of the holding company. In doing so, the private limited company provided security worth €1.76 million for an additional credit facility of two hundred thousand euros. Following the sale of the properties, the holding company, as the second mortgagee, receives just over one million euros. The VAT on the sale, amounting to nearly €1.25 million, is not paid. The tax inspector holds the holding company and its director and major shareholder liable.
Pleading the statute of limitations
The holding company and the director and major shareholder argue that the tax debt is time-barred. The enforcement order dates from April 2016 and, given the five-year limitation period, the limitation period for the tax debt would have expired in 2021. This was well before the tax collector sent a notice of interruption in 2024. According to the tax collector, the limitation period was interrupted in the meantime because the private limited company acknowledged the debt. The Court of Appeal ruled that the holding company and the director and major shareholder, in their capacity as directors of the private limited company, had acknowledged the debt on several occasions.
Rightly liable
The Court of Appeal ruled that the holding company and its director and major shareholder were rightly held liable for the private limited company’s turnover tax debt. The private limited company had disadvantaged its other creditors, including the Tax and Customs Administration, by taking out the second mortgage. Furthermore, this has resulted in a significant increase in the value of the claim held by the holding company and its director and major shareholder. The Court of Appeal has characterised this as manifestly improper management.