30th July, 2009 – The Criminal Courts recently passed a judgement in relation to the obligations established in the Value Added Tax Act. The courts considered the duties of company secretaries as officers of companies in relation to the obligations established in the Value Added Tax Act (Chapter 406 – Laws of Malta), particularly, the submission of tax returns in respect of Value Added Tax (VAT) to the Commissioner of VAT.
In this perticular case, a foreign owned company with directors living overseas, appointed a company secretary in 2006. As part of his role, the company secretary sent the VAT returns to the two directors for their completion to be returned to him. Upon receipt of the completed forms, he would submit them to the VAT Department within the time prescribed by law.
After some time, the directors failed to return the completed forms, even though the company secretary reminded them continuously to do so. Upon being intimated for the initiation of these proceedings, the company secretary decided to resign from his position.
The company secretary was accused, before the Court of Magistrates (Malta) as a Court of Criminal Judicature, as the legal representative of the company and/or as a person registered for VAT with the Commissioner for VAT under the VAT Act and regulations falling under such Act, for having breached Articles 27, 76(c) and 82(2) respectively of the above-mentioned Act. In terms of Article 27, he was accused of having failed to submit VAT Returns.
In terms of Article 27(1) of the VAT Act “Every person registered under Article 10 shall furnish the Commissioner with a tax return for every tax period by not later than the fifteenth day of the second month following the month during which that tax period ends.”
The Court of Magistrates found the defendant guilty of the charge brought against him and condemned him to the payment of a EUR 700 fine in terms of Article 76(c), which, in failure to furnish, inter alia, tax returns, provides for, amongst other things, the imposition of a fine between EUR 700 and EUR 3,500.
The appellant filed an appeal application requesting to revoke the decision in its entirety.
The appellant admitted that as a company secretary, he was an officer of the company in terms of Article 82(1) of the VAT Act which holds that “… where any thing is done or omitted to be done by a body of persons, the provisions of this Part shall apply as if such thing were done or omitted to be done by every director, manager or other principal officer of that body of persons: provided that a director, manager or other principal officer of a body of persons shall not be guilty of an offence in virtue of this subarticle if he proves that he was unaware and could not with reasonable diligence be aware of such act or omission and that he did everything within his power to prevent that act or omission.”
He also admitted that his resignation was done to exonerate himself from responsibility. He however, claimed that the decision of the court of first instance seemed to imply that the only way he could have avoided responsibility was by making false declarations by preparing nil VAT returns so as not to incur penalties.
The appellant stressed that since the company carried out its activities overseas and that the returns were always completed by the directors who lived overseas, he had no access to any information regarding the company’s income and therefore completion of the VAT returns by himself was impossible. Therefore, in default of the directors’ presence, he could only put pressure on them for their completion.
The appellant claimed that the VAT Department took an easy route by pressing charges against the officer of the company that was closer geographically, instead of the two directors who could have been deemed to have more of a direct responsibility for the alleged failure to submit such returns.
The appellant admitted that he resigned when he realised that the VAT Department was going to investigate and he was seemingly going to be answerable instead of the directors, in order to avoid any more involvement with the company.
The Court held that whosoever assumes the appointment of company secretary must always be sure that s/he/it will be in a position to fulfil such fiscal obligations strictly and rigorously. In the event that the officer, including the company secretary realise that these obligations cannot be fulfilled, then there should be an immediate resignation.
As held by the Court of Magistrates as a Court of Criminal Judicature at first instance, the resignation of a Company Secretary with retrospective effect has no effect on the latter’s criminal liability under the VAT Act, despite the relevant notice (Form K) being accepted by the Malta Financial Services Authority.
The Courts saw the appellant stating that he did absolutely everything to put pressure on the directors to send him the completed returns, while at the same time resigning as company secretary as a complete contradiction. In the opinion of the Court the appellant “wanted to have his cake and eat it” by retaining his appointment as Company Secretary only to resign with retrospective effect upon realising that he could be held liable.
The appellant should have resigned instantly and not wait until the VAT Department investigated.
On the basis of the above, the Court of Criminal Appeal rejected the appellant’s appeal and confirmed the judgement of the Court of Magistrates as a Court of Criminal Judicature in its entirety.
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