11.07.2022
The partner is personally responsible for fulfilling the obligations of the partnership.
A partnership is formed by people doing business together for profit and is not considered a separate legal entity, but shares responsibility with the partners regardless of whether the business generates losses or profits. It is usually informal when it comes to small business. Each partner is liable for the debts and obligations of the partnership, unlike the members of a company, where shareholder liability is limited because the company has an autonomous legal entity independent of its shareholders.
The Supreme Court’s unanimous decision on June 15 dealt with these issues. Five relatives formed an informal partnership for the purpose of building houses on jointly owned land and were registered in the VAT register under a specific name. Correspondence between them and the VAT was conducted under their own names as individuals. The VAT Commissioner sent a tax notice to all partners due to non-submission of tax returns.
Article 46(11) of the Value Added Tax Law of 2000, Law 95(I)/2000, provides that any person who fails to pay VAT within 30 days of notification is guilty of a criminal offence. The notice was served on only one partner who did not comply. All partners were held accountable, but since four partners were not notified, they were acquitted.
The partner argued in the trial court that he refused to sign the VAT notice because it was addressed to all partners and that he told the official that the partnership had been dissolved and that he did not represent others. He also considered the VAT calculation wrong, but did not file a claim because he was waiting for the notice to be served to the others so that they could act together. The court did not accept this and found him guilty, ordered him to pay 615,735.27 euros and 209,577.17 euros and sentenced him to six months’ imprisonment for 3 years.
The Supreme Court stated that the informal partnership was introduced into the law to include the concept of a legal entity, but despite this amendment, Law 122 (I)/2020, the concept of an informal partnership is known in practice and also in the law as an association . physical persons participating in joint activities. Of course, it is not a legal entity and before the adoption of amendments to the law, it could not be subject to VAT. The individuals who constituted the partnership had such an obligation and, upon their application, were asked to register under the veil of the partnership. This is an obligation that is joint and several.
The Supreme Court added that the trial court correctly referred to the distinction between a chapter 116 partnership and a limited liability company. The absence of registration of a partnership does not change its character as an association of natural persons, while the persons that make up it bear separate responsibility. This is a noticeable difference between a partnership and a limited liability company, which has an autonomous legal status. The fulfillment of the obligations of the company is not entrusted to the shareholders, as in the case of a partnership.
The Supreme Court found that, given that the appellant was liable to pay the tax due, he was rightly called for an apology and, in the end, it was considered that the elements of the two offenses were substantiated and all his circumstances were taken into account in the consideration deeds . pass judgment on him. Therefore, his appeal was dismissed.
George Coucunis is a lawyer practicing in Larnaca and founder of George Coucounis LLC, Advocates & Legal Consultants
