INTRODUCTION
Legal representatives defined for legal entities are most encountered in practice as (i) members of the board of directors, and representatives appointed in accordance with internal directive in joint stock companies, and (ii) directors and limited representatives appointed in accordance with internal directive in limited liability companies.
Although, as a rule, companies are directly liable for their legal relationships, in certain circumstances, legal representatives may also be liable. Apart from the liability cases regulated under the Turkish Commercial Code No. 6102, according to Article 10 of the Tax Procedure Law No. 213 ("TPL"), legal representatives may also be held liable for tax debts and penalties incurred on behalf of the company they represent. To accurately determine this liability, it is crucial to correctly identify the liability period during the relevant period, as well as the duties and responsibilities of the legal representatives and the division of labor among them. Especially in legal entities with complex structures and multiple representatives, which legal representative is liable for penalties, the limits of their authority, the division of duties among representatives, and the causal link must be determined in accordance with the law and justice.
A. SECONDARY LIABILITY
Pursuant to Article 10 of the TPL, the duties incumbent upon legal entities that are taxpayers or tax liable parties shall be performed by their legal representatives. Taxes and related receivables that cannot be collected in whole or in part from taxpayers due to the failure of legal representatives to fulfil these duties shall be collected from the assets of those who fail to fulfil their legal duties. Pursuant to Article 333/1 of the TPL, tax penalties imposed for actions contrary to tax laws in the administration and liquidation of legal entities shall be imposed in the name of the legal entities. When these provisions are interpreted together, it has concluded that the liability of the legal representatives of legal entities for tax penalties is secondary, and that tax penalties should first be collected from the legal entities. The legal representative should only be held liable if the tax penalty cannot be collected from the legal entity, in whole or in part, due to the representative's failure to fulfil their duties. It should further be noted that management authority and representation authority are distinct authorities and concepts. Specifically, in tax law, liability for tax penalties in legal entities may apply to legal representatives under certain conditions, but liability does not apply to individuals who hold management authority but lack representation authority.
The Council of State has established case law stating that, in cases where the impossibility of collection is not clear and determinable a payment order cannot be issued on behalf of legal representatives without exhausting all legal remedies.
B. TERM-BASED LIABILITY
In order for the legal representative to be held liable for a tax penalty that cannot be collected in whole or in part from the legal entity's assets, the action giving rise to the penalty must be an action taken during the term of assignment of the relevant legal representative. This is because the legal representative is only liable for actions taken or omitted during their term of assignment. Even if the legal representative's term of assignment has ended, their liability for penalties arising from failure to fulfil tax obligations during their term of assignment will continue. For example, if the corporate tax return, which must be submitted by April 25, 2023, due to the 2022 corporate income, is not submitted, and the penalty for the irregularity offense is imposed in 2024, the penalty will be imposed on the legal entity, and the collection of the imposed penalty will be sought from the legal entity first. If the penalty cannot be collected from the legal entity or it is determined that it cannot be collected, the relevant legal representative or representatives shall be liable. Therefore, determining who the responsible individuals were at the time the offense was committed is of utmost importance.
C. THE RECOURSE RELATIONSHIP BETWEEN REPRESENTATIVES, THE COMPANY AND OTHER REPRESENTATIVES
The type of liability envisaged for legal representatives is joint and several liability. The joint and several natures of liability raises the issue of recourse and subrogation. In this context, any disputes that may arise should be assessed separately in terms of the relationship between the company and its representatives and the relationship between the representatives themselves.
Although the TPL contains an explicit provision allowing recourse to the principal taxpayer for taxes paid by legal representatives, no such explicit right of recourse is granted for tax penalties. Looking at the wording of the TPL, it is seen that only recourse is provided for taxes and related receivables, while no such right is provided for penalties. On the other hand, Article 35 of Law No. 6183 on the Collection of Public Receivables stipulates that legal representatives may be recourse for all public receivables (including taxes and penalties) they have paid. However, according to the established case law of the Council of State, since Article 10 of the TPL constitutes a special regulation, the direct applicability of the general Article 35 in this area is limited. In this context, the representative's right of recourse is clearly recognized about payments related to the principal tax and related receivables; however, regarding tax penalties, the possibility of recourse remains controversial in practice and doctrine.
In terms of the chain of liability or recourse relationship between the jointly and severally liable manager who pays the company debt and other managers, the legal representative who pays more than their share may seek recourse from other legal representatives or the principal taxpayer based on the joint and several liability relationships. However, in this case, since there is no explicit provision in the TPL, the burden of proving the existence and conditions of the right of recourse will fall on the claimant. According to court decisions, the recourse relationship is a private law relationship, and therefore any disputes that may arise should be resolved through a recourse lawsuit filed with the judicial authorities.
CONCLUSION
The liability of legal representatives for tax debts and penalties is secondary in nature and arises only when certain legal conditions are met. In this context, the debt in question must first be collected from the relevant legal entity; if this proves unsuccessful, the liability of the representative shall be triggered.
In determining whether liability has arisen, factors such as the existence and scope of the representative authority, the duration of the mandate, the overlap between the period in which the debt arose and the term, as well as the factual circumstances at the time of the act, play a decisive role.
As a result, the legal status of legal representatives in relation to tax obligations should be assessed on a case-by-case basis, considering not only their titles but also their actual areas of responsibility, the limits of their representation authority, and their terms of assignment. This evaluation should be made in accordance with both the general principles of law and the principle of fairness.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
