So far we?ve seen legal differences between purchasing shares and purchasing an enterprise. As you could read the matter is complex and multidimensional. Last time I shed also some light from the employment relationship angle, so this time let?s see in more detail the matter of liability for the tax arrears.
The Taxation Act of 1997 states that the acquirer of an enterprise is jointly and severally liable with all his assets for any tax arrears arisen in connection with the enterprise (VAT tax, excise duty, income tax, the real estate tax, custom duty, stamp duty). This provision was recently amended in order to become more business-friendly. Before 1 January 2009 also an acquirer of a particular fixed asset, which value exceeded certain amount, was liable for the tax arrears.
The tax authority can?t turn to the acquirer just like that.First it has to request payment from the taxpayer i.e. vendor of enterprise or in case of issuing writ of execution based upon tax declaration, it has to start the execution proceedings. Only then it may issue a decision, in which it will declare the liability of acquirer. However, execution proceedings against acquirer may be commenced only if the execution against original taxpayer failed.
Seems pretty tough, doesn?t it? Are there any limits or ways of protecting from such harsh consequences?
The answer to that question is positive. First of all the liability is limited to the value of purchased enterprise. Furthermore the acquirer is not liable for tax not collected or collected but not paid by tax remitter or tax collector. Neither he is liable for default interest on tax arrears or interest on advance payment of input VAT tax, which came into existence after the day of acquisition. Secondly, the acquirer may always sue the vendor for the amount he had to pay. However, it might be ineffective in short term, since the previous execution has failed. There is another option. Prior to signing the contract, acquirer may demand a certificate of tax arrears. The acquirer will not be held liable for any arrears not stated in such a certificate. In that way the acquirer reassures whether there are any arrears at all (he doesn?t have to depend solely on the seller?s declaration). It doesn?t mean, that he is not liable for any arrears stated in the certificate, though. Beware, that the certificate is valid only for 30 days. After 30 days the protective power of certificate expires. Another good news is that the liability is limited to the value of the acquired enterprise.
