The Constitutional Court of the Russian Federation has protected[1] the founder and director of a bankrupt debtor from whom the courts of all instances recovered multi-million-dollar tax fines in a bankruptcy case as part of bringing the debtor's controlling person to subsidiary liability.
The Constitutional Court of the Russian Federation pointed out that tax liability is a public-law liability[2]. Subsidiary liability of persons controlling the debtor is, on the contrary, of a private-law nature, being a measure of civil-law (tort) liability, the function of which is to protect the violated rights of creditors and restore their property status[3]. Subsidiary liability provides for taking into account the controlling person’s fault. When bringing a person to subsidiary liability in connection with non-payment of taxes by a bankrupt debtor, this person compensates for the damage caused to the debtor (creditors), but is not responsible for tax offenses of the debtor, i.e., there is a transformation of tax relations into civil ones. Recovery of various kinds of fines in its essence goes beyond the tax obligation and is not restorative, but punitive in nature and is a punishment for a tax offense, i.e., for a wrongful guilty act provided for by law, committed intentionally or negligently.
Russian Constitutional Court recognized par. 11 Article 61.11 of the Federal Law “On Insolvency (Bankruptcy)” as not contradicting the Constitution of the Russian Federation insofar as, according to its constitutional and legal meaning in the system of current legal regulation, it does not imply recovery from the persons controlling the debtor of the amount of fines for tax offenses imposed on the taxpayer organization.
[1] Resolution of the Constitutional Court of the Russian Federation of October 30, 2023 No. 50-P.
[2] Resolutions No. 20-P of December 17, 1996, No. 9-P of July 14, 2005 and others; Resolutions No. 1572-O-O of December 7, 2010, No. 571-O of March 10, 2016 and others.
[3] Resolutions from May 21, 2021, No. 20-P and November 16, 2021, No. 49-P.
The Constitutional Court of the Russian Federation pointed out that tax liability is a public-law liability[2]. Subsidiary liability of persons controlling the debtor is, on the contrary, of a private-law nature, being a measure of civil-law (tort) liability, the function of which is to protect the violated rights of creditors and restore their property status[3]. Subsidiary liability provides for taking into account the controlling person’s fault. When bringing a person to subsidiary liability in connection with non-payment of taxes by a bankrupt debtor, this person compensates for the damage caused to the debtor (creditors), but is not responsible for tax offenses of the debtor, i.e., there is a transformation of tax relations into civil ones. Recovery of various kinds of fines in its essence goes beyond the tax obligation and is not restorative, but punitive in nature and is a punishment for a tax offense, i.e., for a wrongful guilty act provided for by law, committed intentionally or negligently.
Russian Constitutional Court recognized par. 11 Article 61.11 of the Federal Law “On Insolvency (Bankruptcy)” as not contradicting the Constitution of the Russian Federation insofar as, according to its constitutional and legal meaning in the system of current legal regulation, it does not imply recovery from the persons controlling the debtor of the amount of fines for tax offenses imposed on the taxpayer organization.
[1] Resolution of the Constitutional Court of the Russian Federation of October 30, 2023 No. 50-P.
[2] Resolutions No. 20-P of December 17, 1996, No. 9-P of July 14, 2005 and others; Resolutions No. 1572-O-O of December 7, 2010, No. 571-O of March 10, 2016 and others.
[3] Resolutions from May 21, 2021, No. 20-P and November 16, 2021, No. 49-P.