English translation of the original article in Spanish. If there is any discrepancy, the Spanish version prevails.
Introduction
Through this paper, in the framework of the Second Ibero-American Congress of Criminal Tax Law, I intend to address certain aspects related to item 4 of the congress agenda: “Tax Compliance. Compliance programs and exoneration from liability arising from the commission of tax offenses.”
Far from purporting to exhaust a topic so interesting and extensive, and one about which a good deal has been written in our country since the enactment of Law 27,4013, I will attempt to outline some ideas on how I understand that integrity and compliance transparency programs, or compliance programs (cf. Articles 22 and 23 of Law 27,401), can operate as a tool that, in addition to limiting the liability of private legal entities in relation to certain crimes4, may provide certainty to the directors and officers of business companies in the performance of their duties regarding their potential liability for the commission of tax crimes, with special focus on the crime of misappropriation of taxes (Article 4 of the Criminal Tax Regime, as set forth by Article 279 of Law 27,430).
To that end, bearing in mind that tax crimes belong to the so-called blank criminal provisions (tipos penales en blanco), in which the criminal law is supplemented by non-criminal rules, I will briefly review the institution of liability in tax and criminal tax matters in order to analyze whether the conduct of the directors and officers of private legal entities who enforce their integrity and compliance transparency programs can be encompassed within the concept of the so-called “good businessman” as a ground for exemption from criminal liability, even in the face of the commission of a proven tax crime arising from the actions of the organization’s employees.
On liable parties in tax matters
Before addressing the topic referred to in the title, we must recall that when one speaks of liability in tax and criminal tax matters, what one seeks to know is who will be the taxable person of the tax obligation, or the obligor, whether the duty is formal or substantive; and, in the event of non-compliance by the principal obligor, who will be the person whom the law places in the position of “guarantor” of compliance with the principal obligation.
In this line of thought, as an unavoidable reference, Article 27 of the Model Tax Code for Latin America5 defines liable parties as “(…) persons who, without having the status of taxpayers, must, by express provision of law, fulfill the obligations attributed to the latter.”
Likewise, looking at both national legislation (Law No. 11,683) and the legislation of some local tax authorities6, we can state that the taxable persons of the tax obligation are the persons who must perform the principal tax obligation of paying the tax to the Treasury or fulfilling the formal duty, whether the taxpayer or a third party whom the law obliges to comply with the legal mandate despite not having carried out the taxable event7.
Accordingly, most legal scholars8 classify taxable persons as i) persons liable for their own debt; ii) persons liable for the debt of another; and iii) substitute liable parties.
Persons liable for their own debt are taxpayers in the strict sense, that is, those natural or legal persons who carry out the taxable event of the tax in question. Persons liable for the debt of another are the substitute liable parties and those who are obliged to comply on behalf of taxpayers. In the case of both substitute liable parties and persons liable for the debt of another, we are dealing with persons who do not carry out the taxable event of the tax but who, by reason of their connection with the taxpayer, are obliged by law to satisfy the tax obligation with their own assets.
What distinguishes substitute liable parties from the other persons liable for the debt of another is that substitutes are liable for a tax debt in their own name9. In the remaining cases of liability for the debt of another, the liability will be joint and several and unlimited, but always for the debt of a third party. In this regard, Casás10 teaches that “(…) it is possible to state that jointly and severally liable parties are persons outside the factual premise, but close to it, or linked to the principal taxable person by reason of their office or activity, who, placed by the legislature alongside the taxpayer, formalize a legal bond in which both coexist, indistinctly, within the sphere of passive subjection vis-à-vis the Treasury.”
Having clarified the foregoing, we can proceed to analyze what happens when, within the universe of persons whom the law places in the position of guarantors of compliance with certain tax duties, those persons fail to comply with such duties and a tax crime results.
When it comes to applying the criminal tax law, the legislature refers to these parties responsible for compliance with tax duties as the “obligor,” the “employer,” or the “withholding or perception agent,” depending on the type of crime under the Criminal Tax Regime that we seek to apply to the specific case; it is therefore pertinent to review how the liability system works when those obligated persons are directors and officers of business companies.
On the liability of directors and officers of business companies
The attribution of criminal tax liability to company directors and officers requires a reasoned and detailed analysis of the liable party’s own conduct in complying with the tax duties of the entity he or she represents, and not a mere extension of the punitive reproach directed at the principal debtor. The mere exercise of the representation of the legal entity does not render directors and officers subject to penalties for a material act in which they do not take part. Let us recall that, under the principle of the personal nature of punishment, one of the purposes of punishment is to sanction an offense in the person of its perpetrator. Therefore, a third party who did not commit the offense cannot be required to bear the penalty imposed.
On this basis, we can state that the mere circumstance of having held the position of manager or director of a company would not be sufficient to extend to them liability for the breaches committed by the company, provided that no specific subjective elements emerge that would allow joint and several liability for their own acts to be attributed to them.
In sum, any attempt to hold company directors and officers criminally liable on an objective basis would be unconstitutional as applied to the specific case, since it would violate the presumption of innocence, enshrined both in the Fundamental Charter (Article 18) and in the Universal Declaration of Human Rights (Article 11.111), the American Convention on Human Rights (Article 8.212) and the International Covenant on Civil and Political Rights (Article 14.213), which are currently part of the National Constitution (Article 75(22)).
For its part, national corporate legislation14 does not establish the liability of a company director on an objective basis and by the mere holding of office either; rather, it does so on the basis of the concept of the “good businessman” and rests on a reproach of a subjective nature.
Indeed, the General Companies Law (Law No. 19,550) provides only that:
• Directors are unlimitedly and jointly and severally liable to the company, the shareholders and third parties, not automatically but for the improper performance of their duties;
• They are not liable in just any manner but according to the standard of Article 59 of that law15, that is, they are liable if they do not act with loyalty and with the diligence of a good businessman; • Only those directors who fail to fulfill their obligations (those of the director, not the obligations of the company) are liable;
• They are not liable for just anything but for the damages that their acts cause, it being worth noting that taxes, interest and fines are not damages; • They are not liable for just any damage, but only for that resulting from their action or omission (a causal and subjective relationship that must necessarily exist)
• There must be a violation of the law, the bylaws or the regulations, and it must occur through acting with willful misconduct (subjective requirement), abuse of powers or gross negligence16.
In this sense, and linking the tax liability we have been analyzing with the general rules on liability under corporate law, García Belsunce17 maintains that “(…) the amendment to Article 274 of Law 19,550… establishes that the attribution of liability to directors for the improper performance of their duties, as well as for violation of the law, the bylaws or the regulations or for any other damage caused by willful misconduct, abuse of powers or gross negligence ‘shall be made taking into account individual conduct,’ thereby confining the previously broad and indeterminate scope of directors’ liability to their individual conduct.”
Thus, we can state that the liability of directors, managers and other officers for the tax debt of the companies in which they hold such positions is not an objective or vicarious liability. Case law has held that such liability corresponds only to a specific participation by the director or manager and a certain degree of fault or intent in the fulfillment of his or her tax duties as a party liable for the debt of another.
In this regard, the National Supreme Court18, referring to the provisions of Law 11,683 that establish the liability of directors, held that “(...) these rules cannot be interpreted, as the tax authority does, to mean that the mere fact that a person holds any of the listed positions in a company is sufficient for that person to be considered liable under the terms of the law... Those who manage or dispose of the funds of corporate entities are the ones obliged to comply with tax duties.... the other members of a company who have not been assigned those functions are not, in principle, liable to the same extent.”
Therefore, since we are speaking of criminal liability, it does not apply automatically by the mere holding of an office or by occupying a position of guarantor; rather, the subjective factor of such attribution must be assessed19. For the director or manager to be in charge of the company’s duties, he or she must manage or dispose of its assets in the exercise of his or her functions20; it is thus necessary to analyze, in each case, whether there has been subjective liability (specific involvement in the act) on the part of the company officer in connection with a breach of the tax obligations under his or her charge.
On the liability of directors and officers for the crime of misappropriation of taxes
As we saw in the previous section, for a case of liability to arise, it is essential that there be a certain degree of fault or intent on the part of each officer, director or manager in the fulfillment (or non-fulfillment) of the tax duties of the company or of the managed assets. Now, that liability would seem easier to analyze in practice in cases involving crimes whose statutory definition requires a deceptive component, such as tax evasion (for example, through the use of fake invoices), the improper use of tax benefits or the fraudulent obtaining of tax benefits, since proof of the involvement of the company’s officers in the scheme constituting the deception would suffice to hold them criminally liable.
However, as I stated at the outset, I will focus the analysis on the crime of misappropriation of taxes, because I believe that, in relation to that crime, the financial component inherent in the conduct leading to its commission means that resolving the question of liability is not so simple, especially when it concerns the officers of business companies in relation to an offense of commission by omission.
That crime, provided for in Article 4 of the Criminal Tax Regime (as set forth by Article 279 of Law 27,430), punishes with two to six years of imprisonment the conduct of the collection or perception agent who withholds or collects the tax and fails to pay it in within thirty calendar days after the deadline for its payment has expired —in accordance with the rules of the relevant tax—, provided that the amount withheld exceeds the sum of $100,000 per month.
On this offense, the Supreme Court has explained that “[i]t is an offense committed by omission, instantaneous in nature, which is consummated, in its material or objective aspect, at the precise moment when the omitted act should have been performed, that is, upon failing to deposit the withheld contributions in a timely manner. Furthermore, with regard to the subjective element of the criminal offense in question, it should also be recalled that the agent charged with the duty to withhold contributions does not assume that role as a consequence of a transaction of trust or delivery based on the consent of the parties, but by provision of law, which imposes on him certain obligations to which he must conform under penalty of incurring the liabilities that may correspond to him for his remiss performance (Fallos: 293:101, cited above)”21.
In this sense, the special status of the perpetrator is not a minor detail, since his or her status as “collection agent” or “perception agent” is what places him or her in a special position of guarantor with respect to the proper flow of money into the State’s coffers.
Thus, once the agent obtains the money withheld or collected from his or her transactions with other taxpayers, by reason of the legally imposed duty he or she manages the assets of another, which he or she is under the obligation to pay in properly.
In fact, it has been stated that “…the misappropriation of taxes, defined by Article 6 of Law 24,769, is criminal conduct «because it is not a mere breach of an administrative duty or the mere non-payment of a debt, but an abusive omission that causes financial harm to the State. It is a criminal omission because through it the perpetrator defrauds the State with respect to the monies entrusted to him for a specific and clear purpose, under a legal title that did not transfer ownership to him. It is abusive because the perpetrator, through his omission, fails to respond to the trust in its proper execution that the very title by which the money involved was delivered to him”22.
Moreover, that court compared the offense under examination to a fraud in the management of the interests of others, similar in certain respects to the offense of improper retention, above all insofar as the legitimately entrusted interest of a third party is harmed; specifically, it noted that it is possible “…to consider Article 6 as if the legislature had imposed a special role on the citizen who, although not criminally obliged to carry out a certain conduct, if he does carry it out and obtains money belonging to the collection agency, must act accordingly, that is, he becomes obliged to deposit it. After the actual collection (or withholding) has taken place, the perpetrator becomes a person in charge of looking after the interests of others,” who “…acts only in relation to a specific management task, which he must perform according to the standards of a good custodian.”
These interests entrusted to the withholding agent form part of the funds that must flow into the public coffers, and their timely and proper payment is the key to that dynamic flow described when defining the legal interest protected by the criminal tax provision.
Along these lines, the existence of a duty of solidarity or contribution to the support of public burdens has been considered a good in itself, which may or must be guaranteed by the State, and which serves to balance and harmonize the principles of liberty and equality characteristic of modern societies23.
Thus, the public treasury has been defined as “…the economic and financial activity carried out by the State, which is constituted through the dynamic integration of two aspects: tax collection and public expenditure”24. This notion integrates various elements related to public finances, which entail providing a framework of protection for the “effective, complete, accurate and timely collection of enforceable taxes”25 as well as for the entire flow of funds on which State activity rests, which translates into the protection of the solidarity contribution of all citizens for the purpose of giving life to State activity, essentially devoted to the provision of public services, in order to guarantee constitutionally recognized rights.
In this regard, it has been noted that “while it is correct that the protected legal interest is linked to the proper and regular collection of taxes, this describes only a positive facet of this relevant fact”26, and account must be taken of the various aspects of the tax regime insofar as it provides on numerous occasions for the application of reimbursements, recoveries, deferrals and refunds. These concessions granted by the State also form part of the tax regime, even though they are not strictly linked to the revenue-collection task and may be linked to economic policy objectives of vital importance.
That is why it must not be lost sight of that the tax regime applies not only in relation to funding the expenses that the State must undertake, but also as a suitable instrument or means of economic intervention, based on the aforementioned principles of equality and liberty. The creation of taxpayer categories, the differentiation of treatment according to activities, and the existence of promotion and development zones stand as useful tools for shaping the circulation and trade of goods and services; in short, for regulating or intervening in the country’s economy.
In view of this landscape, it can be deduced that what is at stake is not the protection of a merely patrimonial or financial interest but rather the safeguarding of the structure on which the very activity of the State and the pursuit of its political, economic and social objectives rest27.
Against this backdrop, it would seem difficult to avoid concluding that the conduct of a person (when it is a business company) that misappropriates taxes it withholds or collects and fails to pay them in beyond the legally established deadlines does not also give rise to the criminal liability of its directors and officers.
Having reached this point, one may ask: can integrity and compliance transparency programs, or compliance programs (cf. Articles 22 and 23 of Law 27,401), operate as a tool that provides certainty to the directors and officers of business companies in the performance of their duties regarding their potential liability for the commission of tax crimes and, in particular, for the crime of misappropriation of taxes? Before answering that question, I consider it pertinent to briefly introduce the reader to what integrity or compliance programs consist of.
On integrity and compliance transparency programs
Although Argentina has long had legislation imposing criminal penalties on legal entities28, whether for acts of natural persons committed within them or directly for actions or omissions considered to be the company’s own, as of 2018 Law 27,401 established criminal liability for private legal entities —whether of domestic or foreign capital, with or without State participation— for the crimes of bribery, transactions incompatible with the exercise of public office, influence peddling, extortion by public officials (concusión), illicit enrichment of public officials and employees, and aggravated false balance sheets and reports29. The novelty of this law is that it enables private legal entities to implement “integrity programs consisting of the set of internal actions, mechanisms and procedures for the promotion of integrity, supervision and control, aimed at preventing, detecting and correcting irregularities and unlawful acts covered by this law” (cf. Article 22 of Law 27,401).
Pursuant to Article 23 of the law, these integrity programs must contain, at a minimum:
a) A code of ethics or conduct, or the existence of integrity policies and procedures applicable to all directors, officers and employees, regardless of the position or function held, which guide the planning and execution of their tasks or work so as to prevent the commission of the crimes contemplated in this law;
b) Specific rules and procedures to prevent unlawful acts in the context of tenders and bidding processes, in the performance of administrative contracts or in any other interaction with the public sector;
c) The holding of periodic training on the Integrity Program for directors, officers and employees.
Although it is clear that, in the event of the commission of an offense, under the regime of Law 27,401 integrity and compliance transparency programs serve to exempt from punishment the private legal entity —not the natural persons who took part in the act— in relation to the crimes mentioned at the beginning of this section —and provided that it engages in certain conduct30—, one may ask what the situation of the directors and officers of business companies is in the face of the commission of other types of crimes, such as those under the Criminal Tax Regime.
On integrity and compliance transparency programs as a limit on the liability of company directors and officers in criminal tax matters
Through these integrity programs, the aim is to introduce the compliance function, understood as the “set of procedures and good practices adopted by organizations to identify and classify the operational and legal risks they face and to establish internal mechanisms for prevention, management, control and response to them.31”
That is why, in order to be effective, integrity programs must “be commensurate with the risks inherent in the activity carried out by the legal entity, its size and its economic capacity” (cf. Article 22 of Law 27,401)
The early detection and identification of risks or red flags specific to each company’s own activity constitutes the central axis that must guide and direct an integrity program; that is why I believe that such a program cannot overlook the tax issue and the risks associated with crimes such as the misappropriation of taxes, where the financial component arising from the late payment —or non-payment— of amounts withheld or collected above certain thresholds harms legal interests protected by the Criminal Tax Regime, harm that can be avoided by establishing internal procedures and controls aimed at enabling company directors and officers who act diligently to ensure that this does not happen, by requiring periodic reports from the relevant areas of the organization on which the making of the payments in question depends. In this sense, company directors and officers can take affirmative actions aimed at auditing compliance with, and the effectiveness of, integrity programs that address tax risk linked, for example, to the failure to pay in a timely manner the withholdings and perceptions made in a given period.
These actions can be recorded in Board of Directors’ minutes, in which the approval and treatment of matters related to the integrity program can be verified and which, in turn, serve as a basis for the approval of management’s annual performance that the shareholders must carry out.
Along these lines, the commitment of directors and officers to carry out training —which can also be documented— for personnel at the various levels of the organization is fundamental for the integrity program to be complied with and to be effective for the early detection of tax contingencies.
In this way, in addition to securing evidence that can formally be used as proof, should a crime nonetheless occur as a consequence of the actions of an employee of the company, it can be detected in time, regularized and/or voluntarily reported, as appropriate.
Thus, notwithstanding the fact that the company officer is the legal representative and, as such, a tax obligor, the requirement of a reproach of a subjective nature and the analysis of these circumstances in light of the concept of the good businessman adopted by our corporate legislation allow us to state that an integrity program can operate as an objective, measurable and easily auditable limit for mitigating the criminal liability of the directors and officers of business companies, even in the case of tax crimes such as the misappropriation of taxes.
Indeed, I believe that the existence of controls and of an internal mechanism aimed at detecting and preventing tax breaches, set out in the integrity program and regularly audited, constitutes a tool that can exclude from criminal liability the legal representative in question who, had it not been implemented, would normally face criminal proceedings merely by virtue of the position of guarantor or guardian of interests imposed on him or her by the criminal tax legal system.
By way of conclusion, I affirm and maintain that the conduct of the directors and officers of private legal entities who enforce their integrity and compliance transparency programs can be encompassed within the concept of the so-called “good businessman” and operates as an objective limit and an efficient ground for exemption from criminal liability, even in the face of the commission of a proven tax crime arising from the actions of the organization’s employees.
General information only. This is not professional advice on any particular case.