Managing Director Liability for German VAT (Sections 69, 34 AO): The Second Front

Directors do not owe the company’s taxes. They answer for breaches of duty — and that is exactly where the defence begins.

While the company is still disputing its VAT assessment, the German tax administration frequently opens a second front: a personal liability notice (Haftungsbescheid) against the managing directors. In large VAT cases this is the rule, not the exception — practitioners describe soberly how, in carousel-suspicion scenarios, liability notices threaten directors’ private assets in parallel to asset freezes against the company, sometimes addressed to anyone who might appear to hold power of representation. Holding genuinely responsible individuals to account is legitimate. But Section 69 of the German Fiscal Code (AO) is not strict liability for someone else’s tax debt and no automatic consequence of office. The provision requires a personal breach of duty, a qualified degree of fault, causation — and a properly reasoned exercise of administrative discretion. Each element is a line of defence. And the strongest one is built before the crisis: a documented organisation.

How the liability is constructed — and where it breaks

Section 69 AO builds on Section 34 AO: legal representatives — for a German GmbH, its managing directors — must fulfil the company’s tax duties: file returns correctly and on time, and pay taxes out of the funds they manage. They are personally liable to the extent that tax claims are not assessed or not satisfied, or not in time, as a result of an intentional or grossly negligent breach of those duties. Section 35 AO adds the person with de facto power of disposition — the “managing director without the title”. The circle of potential addressees is therefore wider than many assume: alongside the formally appointed officers, de facto decision-makers and, in certain circumstances, authorised signatories (Prokuristen) with comprehensive powers of disposition. All the more important is the first sorting question of every engagement: who is even a proper addressee of liability — and for which months? For liability is period-specific: it attaches to duties that had to be fulfilled during one’s own tenure of responsibility, not to the company’s entire history.

This yields the test every liability notice must survive: Did the addressee actually hold the position of duty during the relevant period? Which specific duty was breached — and by whom? Was the breach grossly negligent or intentional? Was it causal for a tax shortfall? And did the authority visibly and sustainably exercise its discretion (Section 191 AO) — why this director, why this amount, why him alongside or instead of other responsible persons? In practice, notices fail surprisingly often at the unspectacular stages: the period, causation, discretion. On quantum, German case law measures liability for unpaid taxes against how the company distributed its available funds among all creditors — the director need not prefer the tax office, only treat it pro rata. Reconstructing the liquidity of the critical months turns a dispute about totals into a dispute about ratios.

Whom the tax office really pursues

The textbook notion is: liability strikes the registered managing director. Procedural reality is broader. Alongside the appointed officers, the authorities routinely pursue de facto managing directors, who actually steer the company’s affairs without any formal appointment, and persons with power of disposition under Section 35 AO — whoever can operate the accounts and appears externally as a decision-maker moves into the tax-law position of duty. Authorised signatories (Prokuristen) with comprehensive powers of disposition stand on the same list. And under the investigative pressure of large carousel complexes, even sales staff and back-office employees find themselves named as suspects in criminal proceedings — not because their responsibility had been established, but because the authority reaches wide first and sorts later. That is the sequence of practice: first the reach — liability hearing letter, notice, asset freeze, examination as a suspect — then the differentiation by actual role. And that differentiation is not something the authority performs of its own motion; it is the work of the defence.

Three consequences follow. First, role clarity before the crisis: who decides what — and who expressly does not — belongs in writing; lived responsibility and documented responsibility must be congruent. Second, signature and authority rules with a sense of proportion: account mandates, Prokura grants and “historically grown” authorisations should be reviewed and pruned regularly — every courtesy authorisation is a potential liability anchor under Section 35 AO. Third, an early, separate defence for every person addressed: the interests of the company, its officers, authorised signatories and employees do not automatically run in parallel. Anyone who receives a liability hearing letter, a summons or suspect status needs representation of their own — coordinated with the company’s defence, but not identical to it.

Federal Fiscal Court 2025: a register entry is not a position of duty

How concretely the position of duty must be examined was sharpened by Germany’s Federal Fiscal Court (BFH) in late 2025, in a decision of real practical value: a managing director who has already been removed does not incur liability under Sections 69, 34 AO merely because he is still entered in the commercial register — register publicity does not create a tax-law position of duty. That sounds self-evident; in administrative practice it was not: notices against long-departed officers are part of the standard repertoire. The decision also contains a warning, however: after a liability notice is set aside, the authority is not barred from issuing a new one on a different legal basis — notably perpetrator liability under Section 71 AO, which does not presuppose corporate office at all. Win one front, and the next must already be prepared.

The Court of Justice of the EU has also given director liability contours: national rules may work with a reversed burden of proof — but only if the director retains a comprehensive opportunity to exculpate himself and proportionality is preserved; moreover, each tax period must be assessed in its own right. A blanket, undifferentiated responsibility “for everything since incorporation” does not stand on that footing — neither under EU law nor under the German standard of discretion, and both points belong expressly in the grounds of the objection.

Allocation of responsibilities and delegation: organising responsibility means limiting liability

No managing director handles VAT personally. The legal order permits division of labour — it merely demands that it be organised. Three layers carry the defence:

Allocation within the management board. A clear, unambiguous allocation of responsibilities agreed in advance — which for evidential purposes means: in writing — limits the non-responsible directors to a supervisory responsibility. That responsibility never disappears, but it only re-intensifies into a duty to act when there is reason to doubt the proper conduct of the department — in a crisis, upon warning signals, upon recognisable irregularities.

Delegation to staff and advisers. Whoever delegates tax tasks is not liable for every error of the delegate — but is liable for negligent selection and supervision. The commentary literature is blunt: the risk lies in selecting and supervising unsuitable people; qualification, clear roles and the four-eyes principle are fault prevention. The same five-point logic underpins the supervisory duty of Section 130 of the German Administrative Offences Act (OWiG): careful selection, clear organisation, instruction, training and follow-up, intervention upon violations.

Documented control. This is where liability defence interlocks with the VAT compliance management system. A traffic-light system with approval rules, documented supplier checks, escalation paths and reporting lines are not bureaucracy — they are the substantive answer to an allegation of gross negligence, because they show that management actually discharged its duty to organise and supervise. The German tax administration itself recognises that an implemented internal control system can be an indication against intent and recklessness. In short: whoever organises provable diligence removes the ground from under the second front — before it opens. The guiding formula of the defence: liability cases are knowledge-organisation cases. “I knew nothing” is too weak a sentence; what carries is: “we had a system that collects, assesses, escalates and documents the relevant information — and under that system the transaction was defensible at the time.” That is precisely the statement a maintained Evidence Pack makes provable.

Hearing, discretion, ratio: the anatomy of the notice

Before a liability notice is issued, the addressee must be heard — and this hearing is not a formality but the first defence window: position of duty, periods and the liquidity picture are put on record before the authority commits itself. If the hearing is skipped or reduced to a gesture, that is a challenge ground in its own right. In the notice itself, the exercise of discretion must be visible: why recourse at all, why this addressee among several candidates, why this amount. Boilerplate does not carry — an individualised statement of reasons is required, and its absence leads to annulment without the merits ever being reached. On the ratio, the rule is: calculate, do not assert. For the critical months, available funds, due liabilities and actual payments to all creditors are set against each other; only that comparison shows whether, and by how much, the tax office was disadvantaged. Near insolvency a second layer appears: payments management still makes in the crisis sit in the tension between the tax-law duty to pay and insolvency-law payment restrictions — a conflict that demands documented advice, not instinct. And the time axis: liability notices are themselves subject to limitation; for old periods, the limitation check belongs at the start of the defence, not its end.

Defending the second front in a coordinated way

Liability proceedings against directors rarely travel alone. The typical bundle: amended assessments against the company (often Section 25f-based), a liability notice against the officer, an asset freeze reaching private assets, and a parallel criminal investigation. Three consequences:

First: liability is accessory. If the primary tax claim wobbles — on the merits or on quantum — the liability notice wobbles with it. The company’s defence and the director’s defence must therefore be run in coordination; otherwise each front supplies findings against the other. Second: against the liability notice the same rule applies as against any enforcement pressure — objection plus suspension of enforcement, because the objection alone stops no enforcement in Germany. Third: statements in the liability case resonate in the criminal case and vice versa; once proceedings are initiated, the protection of Section 393 AO applies. Whoever explains here without an overall strategy explains twice — and usually against himself.

The honest closing message: a liability notice over millions feels like a judgment. It is not one. It is a challengeable administrative act with many predetermined breaking points — position of duty, period, fault, causation, ratio, discretion. The VSK team of German attorneys and tax advisers takes the notice apart along these stages, secures liquidity and procedural rights in parallel, and merges the defence of company and management into one line.

Cross-reference (July 2026): On the limits of liability for mere participation, see BFH, judgment of 21 April 2026 – VII R 18/24: accessoriness and limitation of the primary debt must always be examined first — details on our sec. 71 liability page.

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