Temporary tax extension and representative liability for taxes




The rules pertaining to representative responsibility, known as "företrädaransvar" in Swedish, often raise concerns among company representatives navigating economic difficulties. Essentially, these rules establish that a representative may be held personally accountable for unpaid taxes and fees that the company ultimately cannot settle. This departure from the general principle of limited liability, whereby representatives and owners are not typically held personally liable for the company's debts, presents a noteworthy shift. Although the liability formally necessitates intentional or grossly negligent conduct on the part of the representative, the practical application of these rules results in strict liability for unpaid taxes which have fallen due.

It is conceivable that these rules leads financially viable companies to prematurely terminate their operations and file for bankruptcy, as representatives perceive that by declaring bankruptcy prior to the expiration of tax obligations, they can effectively evade personal liability. In times of financial distress, the pursuit of reversing the company's downward trajectory through operational and financial changes, which may yield positive outcomes in the future, may appear unviable due to the risk of personal liability. While commendable initiatives have been introduced by the legislator in recent years, such as reducing the minimum share capital requirement for limited liability companies and abolishing the mandatory need for auditors, the provisions concerning representative responsibility undermine entrepreneurial intentions in Sweden. Despite ongoing review of these regulations, progress remains slow.

Amidst the pandemic, the option of applying to the Tax Authority for tax deferral has become a crucial lifeline for numerous companies. The objective of this article is to provide an overview of the regulatory framework and elucidate the implications of these provisions, with a particular focus on tax deferral. Enhanced insights by company representatives regarding the significance of these provisions can help avert unnecessary bankruptcies and facilitate financially challenged companies, burdened by tax liabilities resulting from granted tax deferrals, in recruiting new representatives possessing the requisite competence.

Which representatives are covered by the rules?

The rules regarding representative responsibility includes both legal and actual representatives.

According to the Swedish Companies Act, legal representatives include the Board of Directors and the CEO. Responsibility is attributed to representatives who possess independent influence. However, even a board member who does not actively participate in board work, known as a formal board assignment, may be considered for representative responsibility under certain circumstances. CEOs often have autonomy and the ability to make independent decisions regarding payments. A substitute board member who joins the board can also assume representative liability. Additionally, actual representatives may incur representative responsibilities. An actual representative refers to an individual who influences the management of a company but does not necessarily hold a legal representative position.

Case law from the Swedish Supreme Court (NJA 1979 p. 555) indicates that shareholders with bank power of attorney and control over the company's funds can be considered actual representatives. Other factors that are relevant to the assessment include: the perception of employees regarding the ultimate responsibility for the company's operational activities and management; significant ownership in the company, whether direct or indirect through related parties; and individuals who act as the company's external representatives towards customers, creditors, and authorities.

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