Nouraei & M. Mostafavi Law Offices – 14 December 2024 -Tehran- According to Article 198 of the Direct Taxation ACT: ‘’ Liquidators of legal entities in dissolved companies, and managers of non-governmental legal entities in other companies, shall be jointly and severally liable with the legal entity for the payment of income tax of legal entities, as well as taxes that legal entities are required to deduct, collect or remit under this law and the Value Added Tax Law, which have been finalized during their management. This liability does not prevent guarantors from referring to the legal entity.”
The Deputy Director of Tax Revenues of the Ministry of Economic Affairs and Finance by the Directive No. D/230/21809 dated 29/5/1399 (12 August 2020) had already emphasized the joint and several liabilities of all managers of legal entities in relation to the finalized taxes of companies and other legal entities in light of Article 198 and had ordered that in the event of failure of companies and legal entities to pay taxes, enforcement actions be taken against managers to collect taxes.
How the provisions of Article 198 are implemented has been repeatedly objected to, and finally, five plaintiffs appealed to the Administrative Court of Justice, (which, according to Article 173 of the Iranian Constitution, examines such objections to decisions that are contrary to the law and/or Sharia) and have requested the annulment of the aforementioned directive.
As a result, the Administrative Court of Justice, in its Ruling No. 140331390001889279 dated 8/8/1403 (29 October 2024) and by citing the opinion of the Guardian Council, annulled the Directive with the argument that “the application of the contested decision to managers who were negligently unaware of the taxes due or who do not have the right to sign and who have no way of avoiding paying taxes (for example, cannot resign) was recognized as contrary to Sharia principles.”
In cases where objections to government regulations and decisions are made in terms of Sharia, the Administrative Court of Justice acts in line with the opinion of the Guardian Council.
According to the Iran Constitution, the Guardian Council is obligated to prevent the approval of laws and regulations contrary to Islamic law and rules or those contrary to the Constitution.
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