D. Stamarga - Case Law Criteria for Exoneration of Nominal Managers (Straw Men) in Tax Evasion Offenses

Summary: This article presents through some case law examples the criteria that courts have used to determine, in cases of corporate tax evasion, that the person who appears formally only as the company's administrator, without being the actual manager, is exonerated from liability for the commission of the said offense, because in reality it was committed by another person who was in fact managing the company.

1. Introduction

In many cases, individuals who have no actual involvement with the company's activities are placed in managerial positions. These individuals are the so-called "straw men" and are often placed in these positions to facilitate relatives or friends who, for various reasons, whether tax-related or due to other incompatibilities, cannot appear in the General Commercial Registry (GEMI) as members of company boards. In these cases, the real management of the legal entity is exercised not by the individuals who formally hold the title of company manager, but by those who actually manage the company and, in most cases, are the true owners of the business.

Thus, the question arises as to who bears the criminal responsibility for committing tax evasion offenses when such an offense is committed on behalf of a legal entity. Can the legal representative or administrator be held liable when they are only the nominal head but have no actual connection with the company and its real management? Conversely, can the de facto (real manager) be held liable and the nominal manager (straw man) be exonerated?

2. Legislative Provision

In paragraph 1 of Article 80 of the Tax Procedure Code (Law 5104/2024), it is stated that "In legal entities, the perpetrators of the offenses of this law are considered, as long as they have contributed to their commission through any act or omission: a) In domestic anonymous companies, the presidents of the boards, the managing, executive or co-operative directors, the managers, the general directors or directors, as well as any person appointed either directly by law or by private will or court decision to the management or administration or representation of them. If all the above persons are absent, the members of the boards of these companies are considered as perpetrators, as long as they actually exercise any of the duties mentioned above temporarily or permanently...". Furthermore, in paragraph 4 of the same article, it is stated that "Perpetrators or accomplices of the above offenses are also considered to be those who, in any case, exercise the powers and responsibilities corresponding to the positions of paragraph 1".

This last paragraph extends the possibility of holding criminally responsible even those who do not formally hold (e.g., by statute, General Assembly decision, or court decision) any of the positions or roles of paragraph 1 of Article 80 of the Tax Procedure Code. However, in any case, in order to establish criminal responsibility for tax evasion offenses, it must be proven, as stated in paragraph 1 of the same article, that the person contributed to the commission of the respective crime through action or omission. Thus, for establishing criminal responsibility for the offenses of Article 79 of the Tax Procedure Code, not only holding a specific formal position is required but also the commission of an act (action or omission) by the person holding this formal position.

3. Case Law Examples of Exonerating Nominal Managers

Based on the above, courts do not suffice to establish the existence of criminal liability of a person on the fact that the tax administration provides documents confirming that the defendant held the specific position in the legal entity, but further examine the substantial involvement of the person in the company's management, especially when the defendant claims that they did not perform management duties corresponding to the position they held, such as monitoring accounting processes.

In cases where the managerial staff's behavior consists of failing to prevent the act of a third person who has committed the respective offenses, such as when a false or inaccurate tax return is prepared and submitted by the company's accountant, the following three conditions must also be met to establish the criminal responsibility of the managerial staff: a) the managerial staff must have the objective/actual ability to prevent the act of the third person by exercising the authority derived from their superior position in the legal entity's hierarchy, and not use this ability, b) the managerial staff must have known and covered the critical act of the third person, and c) if the subjective element of the respective offense requires special elements, such as the intent to evade payment of the respective taxes, these elements must also be present in the managerial staff (see relevant Decision No. 1747/2010 of the Thessaloniki Court of Appeals: "If, however, the person who commits the material acts that constitute any of the tax evasion offenses is a third person different from the one who holds the required by law position, then two cumulative conditions must be met: the managerial staff i) must have known and covered the critical act of the third person and ii) must have had the objective - actual ability to prevent the critical act of the third person by exercising the authority derived from their superior position in the legal entity, and not used this ability").

Further criteria formulated by case law for the content of the concepts of "management" or "administration" of a company include age, education, scientific and technical knowledge, possible previous experience, the duration of even nominal presence in the company's management, physical presence at the company's headquarters, access to the company's funds, representation of the company in transactions with third parties, exercise of managerial rights towards company employees, but also receipt of orders or approval from the real manager of the legal entity.

Below we present indicative excerpts from decisions where the aforementioned criteria appear, resulting in the court ultimately exonerating the individuals who formally only had the characteristics of managing the legal entities. It should be noted that some of these criteria have been formulated in decisions concerning the offense of non-payment of debts to the State, but due to the relevance of the two offenses and the teleology on which the courts based these judgments, it should be accepted that they can also be applied to tax evasion offenses:

- Decision No. 90/2015 of the Supreme Court which annulled the decision of the five-member Athens Court of Appeals because "the court of substance based the criminal responsibility of the appellant and consequently its condemnatory judgment exclusively on his capacity as Vice President and legal representative of the anonymous stock brokerage company '...', without clarifying, regarding these capacities, whether at the critical time of committing the tax evasion offense, the appellant a) replaced due to impediment and whom the President of the Board of Directors, b) why he represented the obliged anonymous company instead of the legally provided Board of Directors, and if under his capacity, he was assigned the duty of submitting the tax return, and c) if at the same time, he actually, temporarily or permanently, performed specific management or administrative duties, so that his criminal responsibility could be legally established [...] Moreover, the appellant's knowledge that the submitted tax returns were inaccurate and his intent to achieve the criminal result of avoiding income tax payment are not adequately justified with reference to specific incidents, given his position as a deputy managerial staff, which makes it possible that he was not aware of what the President and CEO of the company knew, the mere repetition of legal conditions in both the reasoning and the dispositive not being sufficient". Similar judgments are also found in Decision No. 225/2015 of the Supreme Court.

- Decision No. 329/2012 of the Five-member Larissa Court of Appeals according to which "The Court was not convinced that the defendant [: with the capacity of Vice President of the Board, manager, and legal representative of a bankrupt S.A.] was aware of the actions and omissions of her husband [President and CEO of the Board of the same S.A.], i.e., the submission of an inaccurate income tax return for the fiscal year 2000, non-submission of a return for the year 2001, and the inaccurate VAT return for the years 2000 and 2001, and for this reason must be declared innocent. No witness testified against her. The bankruptcy trustee testified that the defendant had no involvement with the company, was and is a hairdresser, without having a luxurious hair salon. Even the first prosecution witness, an auditor, testified that there are no elements proving that the defendant exercised real management".

- Decision No. 18618/2009 of the Thessaloniki Misdemeanor Court according to which the managing director of a company was acquitted with the reasoning that: "Due to her financial need and the trust relationship that had been established with the shareholders of the above company, she accepted to appear as the managing director of this company, as she could not know what responsibilities she was assuming, as she had primary school education and no commercial experience, and the above assured her that she would have no involvement with the company's obligations, which they continued to manage themselves (...). Therefore, since she did not manage the company, she was not responsible for the respective debts and should be declared innocent...".

- Decision No. 1568/2018 of the Supreme Court in which the defendant was acquitted because "…it was not proven beyond any doubt that the defendant participated substantially and not just formally in the company's management, contributing to its administration and representation, given that the defense witness, who had an adjacent shop, testified that the defendant was occupied with his university studies and had never collaborated with him, only with his father Χ.Π. του Γ […] Based on the above, the Court maintains doubts as to the defendant's knowledge of the debts listed in the table below, doubts which also extend to whether he had the intent to delay the payment of certified debts, the subjective elements of the offense, both cognitive and volitional, being absent in his case...".

- Decision No. 28738/2015 of the Athens Three-member Misdemeanor Court in which it was ruled that the defendant never exercised real management in the company and should therefore be declared innocent of the act of non-payment of debts to the State charged against her, as it was proven that "the defendant at the critical time (2.11.2012) had only nominally the position of Managing Director of the anonymous company under the name 'N.R. S.A.' based in [...] Attica. During the said period, she lacked any managerial authority or decision-making capacity on any matter, including the company's tax issues. This conclusion is also supported by the fact that she did not have a physical presence at the company's headquarters, had no access to the company's funds, and never represented the company in transactions with third parties or exercised managerial authority over the company's employees. Moreover, as a high school graduate, she lacked the scientific knowledge and training in business management. Furthermore, her participation in the company's Board was done to facilitate and assist A.M., with whom the defendant had a personal relationship. He was the one who actually managed and was essentially the President and Managing Director of the company, and due to his previous business activities as President of the company 'V. S.A.', he did not have tax clearance and had unfavorable records in the banking system 'Teiresias', preventing him from officially representing the company 'N.R. S.A.'".

- Decision No. 5454/2017 of the Athens Three-member Misdemeanor Court according to which: "The business, initially in its corporate form and subsequently as an Ltd, relied on the trust relationship between the two partners, of whom N.K. exclusively handled the technical-construction part as responsible for the work crews and the construction of the scaffolds, being occupied all day on construction sites, while K.N. had assumed and exclusively handled the financial management of the company. Thus, in practice, the financial management of the business was undertaken by the first defendant, who had also been appointed, as mentioned earlier, as the company's treasurer. The second defendant was unaware of the disputed debts and the delay in their payment, as the first defendant never informed him, and the second defendant, lacking the necessary accounting knowledge, access to the cash and kept books, and due to the trust he had in his partner, had no other source of information apart from the first defendant. Consequently, the second defendant must be declared innocent due to doubts about his intent, as he was unaware of the debts included in the list, and his lack of intent extended to his intention to delay the payment of confirmed debts, both the knowledge and volitional elements being absent in his case".

4. Conclusion

From all the above, it is concluded that it is possible for a court to exonerate a person from charges of committing tax evasion offenses on behalf of a legal entity when the person formally holds the position of representative, manager, director, or managing director of a company, but in practice, has no connection with the commission of the offense in question. This, of course, must be supported and proven by the defendant in the appropriate manner.