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Tax Indemnity Clause Share Purchase Agreement

Opublikowano: październik 10th, 2021 by foto-klinika |

The seller`s obligation to compensate the buyer for taxes is generally reduced by all taxes that are part of the final working capital calculation (as described above). This prevents the double counting that would occur if the seller were required to exempt the buyer from a tax debt, when the purchase price had already been reduced to reflect the same liability. In order to best protect against existing or past tax arrears of the acquired business that have been accumulated prior to the acquisition, the buyer will generally endeavor to obtain from the seller certain guarantees and/or indemnities in tax matters. Given the pace of changes introduced in both Polish and international law, changing court decisions and inconsistencies in the decisions of the tax authorities, appropriate guarantees and indemnification clauses covering the company`s tax comparisons should be among the buyer`s priorities in negotiating the terms of the BSMS. Tax underpayments are real money and can seriously affect the profitability of the buyer`s investment. It is therefore desirable to include appropriate safeguards in share purchase agreements. Finally, the exemption clauses regulate cases where the seller is absolutely not responsible for the rights of the buyer. Below you will find some examples of such cases: to the extent that the claim results from or is increased by an act, omission or transaction carried out by the buyer after expiration; (ii) any change in the law or its universally accepted interpretation, including new fees after the reference date; (iii) a breach by the buyer of the obligations arising from the SPA; (iv) an act or omission of the seller carried out at the request of the buyer; (v) facts, facts or circumstances which were disclosed to the purchaser in the data space, in the accounts or elsewhere, or which were publicly available before the signature of the SPA; (vi) the facts for which provisions or corrections have been made in the company`s accounts delivered to the purchaser. This may be surprising to some, but tax returns and guarantees do not play a decisive role in compensating the buyer for any tax debt of the target before conclusion. While a tax return violation can result in an economic loss compared to a pre-estimate time, any compensation related to this offense is likely, at best, double that of the tax indemnity (in most cases, it would be better for a buyer to claim compensation as part of the tax indemnity rather than violating tax returns). To this end, tax declarations and guarantees fulfil other objectives of the buyer, including a due diligence function that offers a right of “departure” when the assurances found between the signature and the conclusion are significantly inaccurate and may offer a right to compensation in respect of taxes incurred during a post-closing period. In a future episode of this series, we will discuss in more detail the role of tax representations.

In addition, the law may give rise to secondary liability for VAT and payroll tax obligations for temporary agency workers and contractors. These debts should be covered by the tax indemnity to the BSB. From the buyer`s point of view, the purpose of both documents is to examine the situation in which the business is purchased and then it turns out that its tax treatment before the transactions was wrong. In this case, the company may be held liable for taxes that are overpaid, interest (which can be high, especially when a tax audit reveals tax treatment errors made a few years ago), or even additional penalties. Indemnification clauses may provide for the possibility of remedying the infringement, so that the seller is not held liable for such a right, to the extent that the fact, case or circumstance that leads to such a right is remedied and corrected by the seller or at the seller`s expense within a specified period. . . .