Management liability insurance is not enough…

The growing pressure to tighten the tax system means that responsibility for tax settlements is no longer the exclusive responsibility of accounting departments or management board members. Thanks to tools like the National e-Invoice System (KSeF) and the JPK_CIT (Joint-of-File Tax File), the tax administration gains access to an increasing amount of data, allowing for more effective identification of irregularities.

The pending amendments to the Tax Ordinance Act provide additional impetus for implementing tax governance solutions. These amendments replace subsidiary liability with joint and several liability for a company’s tax arrears. At the same time, one of the primary arguments for exemption from liability is demonstrating due diligence. This means that for those responsible for managing a company, not only the proper fulfillment of tax obligations but also the ability to demonstrate that the company has appropriate procedures and mechanisms for overseeing tax settlements will become increasingly important.

Liability may extend not only to the management board

The proposed regulations envisage the possibility of imposing liability not only on individuals formally holding management positions, but also on those who actually influence the way a company is run. The scope of responsibilities specified in corporate documents will be significant, but above all, the actual influence on decision-making and the organization of tax processes.

At the same time, it is possible to be released from liability if a given person proves that one of the specified conditions is met, in particular:

• taking actions that led to a reduction in tax arrears by a majority of the total, i.e. by at least 50%;
• exercising due diligence in the performance of duties and in the management of the enterprise, especially in the prevention of tax arrears.

In this context, tax governance is particularly important. Well-designed procedures help streamline internal processes, clearly define the responsibilities of individual individuals and departments, and reduce the risk of tax errors.

In practice, this means not only the proper performance of tax obligations, but also proper documentation of decision-making processes, oversight of settlements, and methods for identifying and mitigating tax risks. These elements can be crucial in demonstrating due diligence.

Does third party liability insurance for company management members solve the problem?

In response to growing legal and tax risks, more and more companies are deciding to take out civil liability insurance for company management.

This is voluntary insurance for board members and other persons performing managerial functions. Its purpose is to provide protection in the event that they are liable for damages resulting from improper performance of their duties.

Insurance can be purchased by a company. Coverage may include, among others, management board members, supervisory board members, procurators, and managing directors. In certain cases, the policy may also cover employees performing managerial duties or persons responsible for maintaining accounting records, provided they have been entrusted with specific management responsibilities based on an appropriate power of attorney.

The scope of protection may include liability for damages resulting from non-performance or improper performance of obligations, for example due to improper management of the company’s affairs, lack of supervision, failure to file a bankruptcy petition on time or making incorrect business decisions resulting in financial losses.

In the event of liability for tax arrears, the insurer may cover defense costs and, within the limits specified in the agreement, claims arising from the liability of management board members. However, the scope of coverage is always limited by the terms of the agreement, the sum insured, and the limits of liability specified therein.

Protection has its limits

The scope of insurance coverage is not unlimited. Standard policies do not cover, among other things:

• damage caused intentionally;
• damage resulting from committing a crime or acting for personal gain;
• claims arising from proceedings initiated before the commencement of the insurance period;
• claims arising from circumstances known to the insured person before the conclusion of the contract but which were not disclosed to the insurer;
• claims made in previous insurance periods;
• liability resulting from a contractual extension of liability beyond the scope provided for by law.

Additionally, both the policyholder and the insured are obligated to take steps to prevent damage or limit its extent. Consequently , even extensive insurance coverage does not exempt them from implementing appropriate procedures and maintaining ongoing oversight of tax processes . It is precisely tax governance that helps mitigate the risk of events that may not be covered by the policy.

Third party liability insurance is not a substitute for due diligence

Third-party liability insurance for company officers can be an important element of a risk management system, but it does not provide complete security. Without due diligence, regular review of internal procedures, and a clear division of responsibilities within the organization, insurance alone will not guarantee protection against the consequences of expanding liability for tax settlements.

Therefore, it is worth verifying the tax processes in place today, reviewing the procedures in force, clearly assigning responsibility for individual obligations and regularly monitoring the effectiveness of the adopted solutions.

The proposed changes demonstrate that responsibility for tax settlements is no longer solely the formal responsibility of management board members. The actual impact on the company’s operations and the way tax processes are organized will become increasingly important. In such circumstances, third-party liability insurance can be a significant element of protection, but it is not a substitute for due diligence, effective procedures, and proper oversight. A well-designed tax system may prove to be the most effective protection against liability risks.

If you would like to verify your organization’s tax processes or assess your company’s level of preparedness for the planned changes, please contact our team.