Forgiveness of tax arrears
Tax arrears are either the amount of tax not paid by the due date and the interest calculated thereon or the amount of tax arising from customs debt not paid by the due date and the interest calculated thereon.
Tax arrears are not, for example, non-compliance levy, fines, etc.
- The Tax and Customs Board may forgive tax arrears on the basis of a written application of a company if the recovery of the tax arrears is unfair due to circumstances beyond the control of the taxable person, including force majeure.
- The Tax and Customs Board may also forgive tax arrears for compromise purposes in bankruptcy proceedings, as well as upon debt restructuring by reduction of debts in reorganisation proceedings or debt restructuring proceedings.
Submitting the application for forgiveness of tax arrears on the grounds of unfairness of the recovery of tax arrears
Collection of tax arrears is, in general, unfair if all these conditions are met at the same time:
- there is evidence of exceptional and unforeseeable circumstances (e.g. force majeure);
- it has been proven that the occurrence of the circumstance did not depend on the will of the applicant;
- it has been demonstrated that the occurrence of the circumstance was not preventable by the applicant;
- it has been demonstrated that the applicant is not able to eliminate the circumstance;
- the applicant has been shown to be in an unequal position compared to other similar taxable persons.
In order for the tax arrears to be forgiven, a written application in Estonian and in free format must be submitted to the Tax and Customs Board. Please add the following to the application:
- evidence to support the explanations and statements made in the application,
- information that you have acted in accordance with applicable law in this matter.
The application can be submitted:
- by e-mailing it to email@example.com (the application must be signed digitally), or
- by mailing it to Lõõtsa 8A, Tallinn, or
- by bringing it to one of the service bureaus.
The Tax and Customs Board will make a reasoned written decision on the application within 30 calendar days. We will issue the decision to the applicant or his or her representative.
Liability for company’s tax arrears
If the Tax and Customs Board fails to recover the tax arrears of the company from the assets of the company, the Tax and Customs Board may proceed to collect the unpaid tax arrears from people who have caused the tax arrears either due to gross negligence (legal representative of the company) or intent (legal representative and executive manager). In order to determine the persons responsible for the tax arrears of the company, the Tax and Customs Board conducts liability proceedings. It is also possible to assume the obligation to pay the company’s tax arrears voluntarily.
Liability proceeding are a sub-type of recovery of tax debts. In the course of liability proceedings, it is analysed whether and under what circumstances a person is liable for the obligations of a company that is a tax debtor. The liability is determined at the time the company has effective tax arrears.
The legal representative of a company is a member of the management body of the company entered in the commercial register. The legal representative is liable for the tax arrears of the company if the following conditions are met:
- the legal representative has violated his or her obligation to arrange for the timely and full performance of the financial and non-monetary obligations of the association (arising from the Taxation Act and tax laws);
- the legal representative has intentionally or through gross negligence breached his or her obligations;
- the company has incurred a tax debt as a result of the breach of the obligations.
The legal representative and the company are jointly liable for the tax arrears incurred.
We draw your attention to the fact that the tax arrears imposed by a liability decision will not be extinguished upon termination of the company.
The executive manager of a company is a person who is not the legal representative of that company but who has control or actual power over the company.
The liability of the executive manager is the same as the liability of a member of the management board, the difference being only that the executive manager is not liable for the incurrence of tax arrears due to gross negligence.
The Taxation Act makes it possible to assume liability for the payment of the tax arrears of a company by contract and the Tax and Customs Board is ready to find solutions for the payment of the tax arrears of the company.
In practice, contractual liability has proven to be a quick and convenient solution in situations where the persons responsible for the company’s tax arrears have acknowledged that the company’s tax arrears have been incurred as a result of their intentional or gross negligence, and have expressed their wish for voluntary payment of the tax arrears.
Transfer of tax arrears
The principle of legal succession also applies to the division of a company, in which case the tax arrears of the company being divided are transferred to the new companies created from the division.
The payment of tax arrears can be agreed upon in the division agreement, but attention should be drawn to the fact that there will be joint and several liability for tax arrears. The Tax and Customs Board may require the payment of the tax arrears of the company that has been divided from all the companies created by the division.
An enterprise is an entity (e.g. a shop or workshop) through which a company or a sole proprietor permanently provides services or transfers goods.
A transfer of an enterprise is a situation in which an entity transfers to another company or a sole proprietor, together with its rights and obligations. In the event of a transfer of an enterprise, the transferor and the transferee are jointly and severally liable for the company’s tax arrears.
If there is reason to believe that the transferor is unable to pay tax arrears and there are circumstances indicating that a similar activity with the same pool of assets serves an economic purpose in the ownership or possession of the transferee, the Tax and Customs Board can demand payment of tax arrears from the transferee (the new obligated person).
General criteria to be taken into account in assessing the transfer of an enterprise:
- type of the enterprise;
- transfer of immovable property, means of production and other material resources;
- takeover of intangible assets and organisation;
- continuity of customer and supplier relations;
- similarity between the activities prior to and after the transfer;
- continuity of the economic activity and, if the activity was interrupted in the meantime, the time of the interruption;
- in the case of so-called low-resourced enterprises, the retention of staff is of particular importance;
- previous activities of the acquirer of the enterprise;
- place of business of the transferor and the transferee, overlap between the members of the management bodies, etc.
Last updated: 05.10.2022