Paying tax does not make a transaction lawful

Tax optimisation is a legitimate part of doing business. A correctly paid tax, however, does not confirm that a transaction is also in order under corporate and criminal law. A managing director who breaches their duties and causes loss to the company may be liable for that loss with their own assets, even when all taxes have been paid correctly. Our Managing Partner Milan Malata explained what managing directors and business owners should watch out for in an interview with the Slovak business weekly TREND.

Assess every transaction from three perspectives

The same transaction can be in order from a tax perspective and still raise questions under corporate or criminal law. Tax law looks mainly at how a transaction is reflected in tax obligations. Corporate law asks whether there was a legal basis for the transaction and whether the managing director acted in the company’s interest. Criminal law examines whether the elements of a criminal offence have been met. Every transaction involving company assets therefore needs to be assessed separately from each of these perspectives. The reverse also applies: an expense that is not tax-deductible is not automatically unlawful in other areas of law.

Multiple companies: yes. Artificial structures: no

Doing business through several companies is not prohibited. There can be sound reasons for splitting a business, such as different investors, separate projects, different business risks or preparing part of the business for sale. Taking the tax consequences into account when doing so does not amount to an abuse of law either. The problem is an artificial structure with no genuine business rationale, set up to avoid a tax obligation or obtain an unjustified advantage. Under the Slovak Tax Procedure Code, such an arrangement may be disregarded in tax administration.

What matters is economic reality, not the number of companies in the register. A warning sign may be switching between invoicing companies whenever a threshold is reached, while the customer continues to receive the same service from the same business and the same people. A shared address or a common owner does not, in itself, prove abuse. There is no universal test; the specific rules must be examined for each threshold.

Company money is not managing director’s money

A possible additional tax assessment against the company does not automatically make the managing director or a shareholder personally liable. A managing director may, however, be liable with their own assets for loss caused to the company by a breach of their duties. For a shareholder, a separate legal basis for liability must be identified; owning a share in the company is not enough on its own.

The problem does not arise only once a tax audit disallows an expense. It can arise as soon as a managing director uses company money for personal purposes without authorisation and causes the company a loss. This applies to companies with multiple shareholders and to single-member companies alike. If, for example, you pay for a family holiday with a company card, there is a fundamental legal difference between a mistake you promptly correct, a properly agreed benefit, and the knowing use of funds that belong to the company, and therefore to a third party, without authorisation. Booking the payment as a “non-deductible expense” does not resolve this question.

Company cars: set the rules in advance

Private use of a company car can be a legitimate benefit, and the tax rules expressly provide for it, including for managing directors. We nevertheless recommend agreeing in advance who receives the benefit, to what extent, who bears the costs and how damage to the vehicle is handled. If the car forms part of the managing director’s remuneration, the appropriate approval must be obtained. In a review, the question is then not only how the benefit is taxed, but also on what basis the managing director uses it, who approved it and whether the actual expenses match the approved terms. This is how transparent remuneration can be distinguished from arbitrarily funding personal consumption.

Tax risks of using company assets privately

A tax risk arises when a company reports personal consumption as a business expense, claims a higher VAT deduction than it is entitled to, or fails to tax a benefit received by a managing director or employee. The result may be an additional tax liability, a penalty and, in the case of late payment, interest, and depending on the circumstances also unpaid social security and health insurance contributions. Taxing the benefit does not automatically entitle the company to a full VAT deduction. Since 2026, a 50% deduction applies to vehicles under the special regime that are used for both business and private purposes.

The amount of the penalty also depends on who discovers the error. If the tax authority assesses the difference, it will cost you more than correcting the error yourself by filing a supplementary tax return.

When can it become a criminal offence?

Not every decision or action by a managing director is a criminal offence, and an ordinary mistake in a tax return is not automatically a crime. In more serious cases, however, using company money for private purposes may meet the elements of breach of duty in the administration of another’s property, or embezzlement. All elements of the offence must always be proven, including the required culpability and the extent of the loss.

Transferring valuable assets to another company owned by the same person also carries risk. The tax treatment of the transfer may be entirely correct. But if the original company is left without the means to pay its debts, the question of creditor protection arises. Where creditors are intentionally prevented from being paid, this may amount to the criminal offence of harming a creditor, and correctly paying tax on the transfer does not justify it. Finally, taxes themselves can have a criminal dimension where there is intentional tax evasion above the threshold set by law.

The full interview

Read the full interview with Milan Malata in TREND (in Slovak) →

Want to check that your arrangements are in order?

An error you find yourself costs less to correct than one discovered by a tax authority. We can help you review your group structure, planned transactions and the rules for managing directors’ benefits so that they hold up not only from a tax perspective, but also under corporate law. We advise on tax planning and the structuring of companies and family businesses, carry out tax due diligence and represent clients in tax audits and related disputes.

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