CEO Liability for Wage Taxes with Tolerated Credit Line

In times of financial and economic crisis, a lot of companies have a liquidity crunch and cannot meet the liabilities on time. What to do when you have not yet paid and you have a extended overdraft credit (tolerierte Betriebsmittellinie) for your account? Are you required to use that credit line in order to pay wage taxes? Is the CEO of the company responsible when he does not pay that tax under these circumstances? The FG Munich in its judgment of December 15, 2008 (re 15-K-4118/07) set up the rules for this scenario.

CEO Liability for Wage Taxes with Tolerated Credit Line

What to do in your position as a CEO? Just trust that your credit line will remain? No, that is irresponsible. An extended overdraft credit is not a sound financial measure but a credit line that the bank can cancel at any time and without any reason and from one day to another. The fiscal judges imposed wide spread consequences: If need be, the CEO will have to cut the net wages to pay the wage taxes in full, when it can be foreseen that the funds might not suffice for all payments.

When the company becomes illiquid after paying out the net salaries but before paying wage taxes because the bank calls in the overdrawn amount, the managing director is responsible only for the taxes in relation to the salary paid. In other words, when your funds suffice to pay the wage tax and the net sum, pay first the wage tax and then from the remaining resources the partial salary.

Remember: "No wages without taxes!"

Settling the deductions is a binding legal consequence of paying a salary is a part of due diligence of a tradesperson ("Sorgfalt eines ordentlichen Kaufmannes"). Following §69 cl. 1 AO, legal representatives of juristic persons can be held liable for tax debts of the company, in so far as they relate to gross negligence or purposely on the infringed duty of the CEO. Relevant alone is the nominal position as a managing director as recorded in the commercial registry. It is does not matter whether the duties of this position were fulfilled in person or not. It is to one of the elementary duties of a managing director to make sure that taxes are paid first. Note: The liability is not only for the taxes alone but for any and all default fees. The responsibility significantly increases when the company lands in financial difficulty.

However, do not confuse the above rules with the general responsibility of the CEO to pay a share to the tax office for company taxes in relation to the all open accounts even when the company lacks sufficient resources to meet them all. When the firm is liquid then this relief will not apply. An exception to this general rule is the above discussed duty that wage taxes are to be paid before everything else - if the managing director wants to avoid personal liability.


The discussion above is also applicable accordingly to social security premiums (§28e SGB-IV). The bottom line is: the order of payment when the assets do not suffice to pay all open accounts is:

  1. wage taxes,
  2. all other open accounts per quota (including company taxes (income or corporate and trade tax, VAT)

When this scheme is obeyed, you will be freed of personal liability as a Geschäftsführer.

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