A partnership is a form of economic activity carried out by persons conducting joint business for profit and is not considered to have a separate legal entity, but shares responsibility with the partners whether it generates losses or profits. It is usually informal when it comes to small-scale work between professionals who combine their activities with the ultimate goal of better performance and profit. However, this choice also creates liability of each partner together with the others for the debts and obligations of the partnership. In fact, each partner is responsible to the same extent as the partnership for any offences, such as tax, towards the competent Authorities as opposed to the participation in a company where the shareholder’s liability is limited, as the company has an autonomous legal entity independent of its shareholders.

The concept of informal partnership and the civil and criminal liability of each partner is indicated in a unanimous judgment issued by the Supreme Court on 15.6.2022. In particular, five relatives set up an informal partnership for the purpose of building houses on a co-owned property and for this purpose were registered in the VAT register with a specific name. Correspondence between them and VAT was done with reference to their own names as natural persons. The Commissioner of VAT issued a tax notice to all partners as there was a failure to file tax returns. The consequences are provided in article 46(11) of the Law on Value Added Tax of 2000, Law 95(I)/2000, which provides that any person who fails or refuses within 30 days of receiving the relevant notice to pay the amount of the VAT imposed is guilty of a criminal offence. The notice was served only to one partner, who failed to comply. The other partners were not served. All the partners were prosecuted, but because the four partners were not notified, they were acquitted.

The partner argued before the Court of first instance that he refused to receive and sign the VAT notice because it was addressed to all partners and that he told the VAT officer that the partnership had been dissolved and he did not represent the others. He also considered the calculation of VAT wrong, but he did not file a recourse because he had been waiting for the notice to be served to the others in order to proceed together. The Court of first instance did not accept his argument and found him guilty, issued an order against him for the payment of the amount of €615.735,27 and €209.577,17 and imposed to him a sentence of 6 months imprisonment suspended for 3 years.

The Supreme Court, examining his appeal, stressed that the informal partnership was introduced in the law to include the concept of legal entity, but regardless of this legislative amendment, Law 122(I)/2020, the concept of informal partnership is known in practice but also in law as an association of natural persons engaged in a joint venture. Certainly, it lacks legal personality and could not, before the amending Law, be subject to VAT. The natural persons who constituted the partnership had such an obligation and at their application, they requested to be registered under the veil of the partnership. It is an obligation which is joint and several.

The Supreme Court added that the Court of first instance correctly referred proportionally to the distinction between the partnership governed by Cap.116 and the limited liability company. The non-registration of the partnership does not differentiate its nature as an association of natural persons for the promotion of common purpose and the exercise of a common business activity, with the persons who constitute it each having a separate liability for the fulfilment of its obligations. This is the noticeable difference between the partnership and the limited liability company, which has an autonomous legal status, independent of the shareholders to whom it belongs. The fulfilment of the obligations of the company is not placed with the shareholders as in the case of the partnership.

The Supreme Court concluded that given that the appellant had an independent, albeit jointly, liability to pay the tax due according to the tax notice served on him, he was rightly called to an apology and in the end, it was rightly considered that the constituent elements of the two offences were substantiated and all his circumstances were taken into consideration upon passing the sentence to him. Therefore, his appeal was dismissed.