Imagine the following situation: you are the founder or manager of a company that has unpaid tax obligations. Suddenly, you receive a decision from the Inland Revenue which states that you personally, with your personal assets, are responsible for paying the company's tax debt. Your bank account can be blocked, your personal property can be seized, regardless of the fact that you probably think that according to the Law on Commercial Companies, the partners are not responsible for the obligations of the company.
This situation is not hypothetical - it is a reality for many businessmen in Macedonia who are not aware of the powerful provision of Article 35a of the Tax Procedure Law. This article introduces an institute called a "tax guarantor" that can dramatically change your financial life.
In this detailed guide, we will analyze the legal framework that allows the Public Revenue Authority to hold individuals personally liable for the tax debts of legal entities, why the Tax Procedure Act takes precedence over the Companies Act, and what you can do to protect yourself.
What is a tax guarantor and who can become one?
The tax guarantor is a legal institute introduced by Article 35-a of the Tax Procedure Law, which allows the Public Revenue Administration to identify and oblige the person who guarantees the collection of the unpaid tax debt by the debtor with his personal property. This is no ordinary warranty - this is a legal obligation imposed without your consent and may result in direct liability for the company's debts.
According to paragraph 1 of article 35-a: "For the tax debt of the tax debtor, determined by a decision of the Public Revenue Administration or unpaid when a procedure for forced collection is initiated, the collection is guaranteed with all his property by the person who, with his decisions, influenced the economic activities of the tax debtor, from which the tax debt arose."
It is crucial to understand that the property of tax guarantor is not limited only to the formal owners. According to paragraph 2 of the same article, a tax guarantor can be:
1. Person with a stake in the taxpayer- This includes founders, shareholders and partners in a trading company. The liability is proportional to the percentage of the share. If you have a 50% share in a company that has a tax debt of 2 million denars, you can be personally responsible for 1 million denars. Critically, liability is not limited to the amount of your capital invested - it can cover all of your personal property.
2. Person representing the taxpayer- This includes managers, directors and other legal representatives. The amount of liability corresponds to the burden arising from the given power of attorney. A manager who signs the financial statements and decides on the company's payments can be called to full responsibility for the tax debt.
3. Person who owes a tax debt - If you personally owe money to the company (for example, you took out a loan from the company), your debt to the company can be used to settle the company's tax debt, up to the amount you owe to it.
4. Person who assumes the debt - If you voluntarily assume the tax debt of the company with a notarized statement, you become responsible up to the amount of the assumed debt.
Why can't the Companies Act protect you?
One of the most common arguments used by businessmen when faced with liability as a tax guarantor is the reference to Article 27 paragraph 3 of the Law on Commercial Companies, which clearly states: "Partners of a limited liability company are not liable for the company's obligations." This is a basic principle of corporate law - the idea that a legal entity is a separate entity from its owners.
However, this argument systematically fails before the Macedonian courts, and there are solid legal reasons for this based on the doctrine of lex specialis. This legal maxim means that the special law has priority of application over the general law when both laws regulate the same matter.
In a case that was the subject of judgments of both the Administrative and the Higher Administrative Court, the plaintiff, the founder of the LLC, argued that according to the Law on Commercial Companies, he should not be responsible for the company's obligations. The Administrative Court initially gave him the right, but the Higher Administrative Court clearly determined that the Law on Tax Procedure is lex specialis in relation to the Law on Commercial Companies.
Why is that so? The Law on Tax Procedure in Article 1 explicitly states: "This Law is the sole basis of the general tax law and the tax procedure." This means that when it comes to determining and collecting tax, the Law on Tax Procedure has absolute priority. When the Public Revenue Administration carries out the tax procedure and determines the status of a tax guarantor, it acts within the framework of the tax-legal relationship, and not within the framework of the relationship regulated by the Law on Commercial Companies.
Furthermore, the Law on Commercial Companies does indeed regulate the relations between the partners and towards the creditors (Article 40 paragraph 4 states that a creditor of the company cannot settle his claims from the property of a partner), but the Public Revenue Authority is not an ordinary creditor - it is a state authority that implements tax laws and has special powers determined by a special law.
This legal situation creates a very serious reality for Macedonian businessmen: the LLC or AD form does not automatically protect you from personal liability when it comes to tax obligations. The limited liability offered by the corporate form applies to commercial obligations, but not to tax obligations when the conditions of Article 35-a are met.
When does the forced collection procedure begin and what follows?
The procedure for forced collection and determination of tax guarantor status does not start automatically. There is a clear procedure established by the Law on Tax Procedure, and understanding this procedure is critical to knowing when you are at risk and when you need to act immediately.
The procedure starts when the tax debtor (company) has not paid the tax debt within the stipulated period. First of all, the Public Revenue Administration adopts a decision that determines the tax debt of the legal entity. This solution contains the amount of the debt, the legal basis, the period it applies to, and the deadline for payment. If the company does not pay the debt within the deadline, the Administration starts a procedure for forced collection.
The procedure for forced collection, in accordance with Article 140 paragraph 1 of the Law on tax procedure, is carried out in the following order: (1) blocking of funds on transaction accounts; (2) collection from third parties who have monetary obligations to the debtor; (3) sale of movable objects; (4) sale of securities; (5) sale of real estate; (6) sale of other property rights.
Exactly at this moment - when the procedure for forced collection against the company has been started - the Public Revenue Administration can make a decision to determine the status of a tax guarantor. This decision is made in a procedure determined by Article 83 of the Law on Tax Procedure. In this decision, the Administration will identify the person who is a tax guarantor, state the legal basis (Article 35-a), determine the amount for which the person is responsible, and start a procedure for forced collection from the personal property of the natural person.
It is critical to understand that once a decision has been made establishing you as a tax guarantor, the Administration may begin direct enforcement of your personal property. This means: freezing your personal bank account, seizing your personal movables (cars, equipment), and in the most extreme cases, seizing and selling your real estate (house, apartment, land).
Furthermore, interest for delay is calculated on the unpaid amount, which currently amounts to 0.03% for each day of delay. Annualized, that's almost 11% annual interest. If the company has a tax debt of 2 million denars and the procedure lasts two years, the interest alone can reach almost half a million denars in addition.
When you are NOT responsible: The exceptions to the rule
Although the tax guarantor provisions are very strict, the Tax Procedure Law provides for an important exception that can relieve you of liability. This exception is critical to understand and could potentially save you from financial disaster.
According to paragraph 3 of article 35a: "With the exception of the received and unpaid debt of the taxpayer who is a debtor, incurred on the basis of self-taxation or determined by the Public Revenue Administration, the persons from paragraph (2) paragraphs 1 and 2 of this article are not guarantors for the unpaid tax, if they prove that they were prevented from paying the received tax due to a previously unresolved legal issue for which is a competent state authority or court."
This means that the founders and managers (but not the persons who have a debt to the company or those who voluntarily assumed the debt) can avoid liability as tax guarantors if they prove two key things:
First, that there was a previously unsettled legal issue. This could be a dispute over the application of tax regulations, the essence of the law, or a legal issue that was subject to court proceedings. For example, if there is a dispute about whether a certain transaction is subject to VAT and that issue is pending before the courts, this can be a basis for exemption from liability.
Secondly, that because of this unresolved legal issue they were prevented from paying the tax. It is not enough that there is a legal issue - you have to prove that it was this legal issue that prevented you from paying the tax. This means that there must be a direct link between the unresolved legal issue and the inability to pay.
It is important to note that the burden of proof is on you - you must provide evidence that these conditions are met. These can be: court cases in which the legal issue is raised, requests for an opinion addressed to the Public Revenue Authority or the Ministry of Finance, legal opinions from experts, and other documents that show that there was an objective impossibility of payment due to the unresolved legal issue.
It is also important to emphasize that this exception does not apply to all types of tax guarantors. Persons who owe a debt to the taxpayer or who voluntarily assumed the debt cannot invoke this exception - their liability is absolute.
Lessons from a real court case: What went wrong for the Public Revenue Authority
One particularly instructive case for the institute of the tax guarantor is the judgment of the Higher Administrative Court (UŽ-3. no. 65/2019), which confirmed the judgment of the Administrative Court (U-5. no. 886/2018). This case is a perfect illustration of how formal-legal deficiencies in the Administration's decision can invalidate the entire procedure, even when the material-legal basis for responsibility clearly exists.
The facts are simple: natural person P.P. from the village of Macedonia, was the founder with a 50% share in the company G-P DOO, which had an unpaid tax debt of almost 4 million denars (exactly 3,962,952 denars). The Public Revenue Administration made a decision with which the person P.P. was determined as a tax guarantor and was ordered to pay 50% of the debt, i.e. 1,981,476 denars, plus interest of 0.03% for each day of delay.
The plaintiff P.P. referred to Article 27 paragraph 3 of the Law on Commercial Companies, arguing that as a partner he is not responsible for the obligations of the company. The Administrative Court initially gave him the right and annulled the decision of the Administration. The administration filed an appeal to the Higher Administrative Court.
The Higher Administrative Court made a fascinating verdict. The court clearly established that the Law on Tax Procedure is lex specialis in relation to the Law on Commercial Companies, and that the person P.P. CORRECTLY has been established as a tax guarantor in accordance with Article 35a. However, the court rejected the appeal of the Administration and confirmed the judgment of the Administrative Court to annul the decision, but for completely different reasons.
The Higher Administrative Court determined that the decision of the Public Revenue Administration contains critical formal-legal deficiencies that make it unclear and unenforceable:
Deficiency 1: The previous decision is not specified. The decision to determine the status of a tax guarantor must refer to an already determined tax debt. However, the decision did not clearly state which previous decision determined the tax debt of the company G-P DOO, from which the responsibility of P.P. Without reference to the previous decision, it is impossible to determine whether the procedure was properly conducted.
Deficiency 2: The period of the debt is not specified. The decision did not specify which period the tax debt refers to. Is it VAT for 2016? For income tax for 2015-2017? Without this element, it is impossible to check the accuracy of the calculation and determine whether the debt is possibly time-barred.
Deficiency 3: Unclear calculation of the amount. It was not explained how the amount of 1,981,476 denars for which P.P. is in charge. Although the court determined that this amount is 50% of the total debt (corresponding to PP's share), this was not clearly stated in the decision itself.
Deficiency 4: Absence of evidence for the stake. The administration only stated that "according to its records" P.P. has a 50% share, but did not submit the evidence. An extract from the Central Register or other documents confirming the share should be attached.
The legal consequence of these shortcomings was dramatic: the decision was annulled, and the Administration had to start the whole procedure again. In the meantime, almost two years have passed, the interest continued to accrue, and the state failed to collect even a penny of the tax debt.
This judgment is a par excellence example of how important it is that the decisions are formally and materially correctly drawn up. On the other hand, it is also an important lesson for businessmen: even when the material-legal basis for responsibility exists, formal deficiencies in the solution can be a basis for its annulment. This does not mean that you will finally avoid responsibility - it only means that the Administration will have to adopt a new, correct solution.
How to protect yourself: Concrete steps to minimize risk
Knowing that you could be personally liable for your company's tax debts is scary, but it's no cause for panic. There are concrete, practical steps you can take to minimize the risk of becoming a tax guarantor, or to contest the decision if you have already been determined as such.
1. Establish strict financial discipline and tax transparency. The best protection is prevention. Ensure timely and accurate payment of all tax obligations. Establish a system where tax liabilities are paid as a priority, before the distribution of dividends or other payments. Keep accurate tax records and keep all documents supporting your tax returns.
2. Hire a professional tax advisor or accountant. Tax law in Macedonia is complex and changes frequently. A professional who is dedicated to following legal changes and correct application of regulations is an investment that pays back many times over. A tax advisor will not only ensure accurate calculation and timely payment of taxes, but can also identify legal tax planning opportunities that will reduce your tax liability.
3. Separate personal and business finances. Never mix personal and business funds. Do not take "loans" from the company without formal agreements and regular repayment. Any debt you have to the company can become the basis of liability as a tax guarantor. If you really need to take funds from the company, do it through a formal dividend payment or salary, on which you will pay the appropriate taxes.
4. Document all key business decisions. If the company runs into financial difficulties and cannot pay all its obligations, document the decision-making process. Keep minutes of shareholders' meetings and board meetings. If you decide to pay suppliers rather than the Revenue Authority, have clear business reasons for doing so (for example, to maintain the company's operational capability). Documentation can be key in proving that your decisions were business justified.
5. Be proactive in communicating with the Internal Revenue Service. If the company runs into financial problems and can't pay its taxes on time, don't ignore the problem. Contact the Public Revenue Authority and request a deferred payment or refund of the debt. The IRS has the possibility of an agreement for deferred payment in installments, which can prevent the procedure for forced collection.
6. If you receive a decision to determine the status of a tax guarantor, immediately seek legal help. You have the right to appeal against the decision within 15 days from the day of receipt. The appeal is submitted to the Public Revenue Administration, which submits it to the second-level authority (the Ministry of Finance). In the appeal, explain in detail why you think the decision is unfounded. Possibly hire a lawyer specializing in tax law.
7. Carefully check the decision for formal deficiencies. As we have seen from the analyzed court case, formal deficiencies can be the basis for annulment of the decision. Check that the solution contains all the essential elements: a reference to the previous solution that established the tax debt, the period for which the debt applies, a clear calculation of the amount for which you are responsible, evidence of your share or position in the company, and a deadline for payment.
8. Consider restructuring your ownership structure. If you work in a high-risk industry or have significant tax exposure, consider restructuring your ownership structure to reduce your personal risk. This may include holding structures, the transfer of part of the share to family members, or other legal mechanisms. However, this must be done proactively, not as a reaction to a pre-existing tax debt - attempting to avoid liability after the debt has been incurred could be considered fraud.
What if you have already been established as a tax guarantor: Your rights and options
If you have already received a decision establishing you as a tax guarantor, do not panic, but act quickly. Your reaction in the first days after receiving the solution can determine the outcome of the whole situation.
Step 1: Read the solution carefully. Check all elements: legal basis, amount, period, calculation, evidence, payment term, and instruction on remedies. Identify any possible ambiguities or deficiencies. Make copies of the solution and keep them safe.
Step 2: Consult an attorney or tax advisor immediately. Time is of the essence. The deadline for appeal is only 15 days, and missing this deadline means that the decision becomes final and enforceable. An expert legal opinion can identify grounds for a successful appeal that you may not have noticed.
Step 3: Collect all relevant documents. This includes: an extract from the Central Registry, financial statements of the company, previous decisions of the IRS against the company, proof of your position in the company (foundation act, decision to appoint a manager, etc.), records of payments and financial transactions, and any other documentation relevant to the case.
Step 4: Prepare and submit a complaint. The complaint must be clear, precise, and legally founded. List all the grounds why you consider the solution to be wrong: formal deficiencies (incomplete solution, absence of essential elements), material-legal deficiencies (wrong legal qualification, wrongly established factual situation), or application of the exception (proving that you were prevented from paying due to an unresolved legal issue).
Step 5: Request a stay of enforcement. Along with the appeal, you can file a request for a stay of enforcement pending a decision on the appeal. This is especially important if enforcement proceedings have already been initiated. The request must be well-founded - for example, if there is a serious likelihood that the decision is wrong and if forced collection would cause disproportionate harm.
Step 6: Consider a settlement. In some cases, it may make more sense to settle with the Revenue Authority to repay the debt in installments, rather than risk an account freeze and asset seizure. This does not mean that you accept that the decision is correct - you can simultaneously challenge the decision and negotiate payment.
Step 7: Prepare for court proceedings. If your appeal to the Ministry of Finance is rejected, you have the right to file a lawsuit with the Administrative Court within 30 days. The administrative court procedure is the last instance for the protection of your rights, and may result in the complete annulment of the decision. However, you should be aware that this is a long and expensive procedure.
Step 8: Protect your property (legally). While the process is ongoing, you can take legal steps to protect your property. However, be very careful - trying to hide assets or transfer assets in order to avoid tax obligations is a crime. Consult an attorney before taking any steps to dispose of property.
The tax guarantor institute is one of the most powerful instruments that the Public Revenue Administration has at its disposal for the collection of tax debts. Understanding this institute and the correct application of the Law on tax procedure as lex specialis is of critical importance for every owner, founder or manager of a commercial company in Macedonia.
The misconception that the LLC or AD form automatically protects you from personal liability for tax obligations can be very expensive. As we have seen, the Law on Commercial Companies cannot protect you when it comes to the application of the Law on Tax Procedure - the special law takes precedence, and the Authority has the right to establish you as a tax guarantor and start forced recovery from your personal property.
However, this does not mean that you are helpless. With a proper understanding of the legal framework, proactive management of tax obligations, careful documentation of business decisions, and timely reaction when faced with a decision to determine the status of a tax guarantor, you can significantly reduce the risk or challenge the decision of the Administration.
Most importantly, do not wait until you face a problem to take action. Prevention is always better - and cheaper - than reaction. Invest in professional tax planning and legal help now, so you don't have to pay many times more later. If you have questions or are facing a specific situation related to a tax guarantor, do not hesitate to seek specialized legal assistance. Your financial future may depend on it.
