8.2 The classic tax covenant does not provide details within the definition in respect of the way that the various Reliefs should be translated into value: the above examples include gross figures such as trading losses arising after Completion, gross figures which have been converted onto a net basis within the accounts, such as losses and capital allowance pools included in the deferred tax account and net figures such as rights to repayment of tax. 8.3 Some tax covenants include within the definition of Tax Liability the means of converting the various components of Buyer’s Relief into value. It is also quite common for tax covenants to use the words “....applying the accounting policies and principles as used in the Completion Accounts ” as a means of indicating how the Reliefs are to be converted into value. It is our view that this wording is too oblique and that a more transparent way of dealing with this issue is to include a new definition of “Accounts Value”: “Accounts Value” means in respect of a Relief or a Corresponding Saving the amount at which such Relief or Corresponding Saving should be recognised in the Completion Accounts, applying the accounting policies, principles and practices adopted in relation to the preparation of the Completion Accounts / [applying generally accepted accounting principles and practice in the United Kingdom] / [applying international financial reporting standards]; 8.4 There are some Reliefs which will not be Buyer’s Reliefs as defined. An example is tax losses existing at Completion (ie trading losses or capital losses) which are not recognised as a deferred tax asset in the Completion Accounts as there is insufficient certainty that profits will be generated in the future. Therefore, if these losses are found to diminish, due to computational errors pre-Completion it is arguable that the Buyer should not be recompensed by a claim under the tax covenant. This is on the assumption that the Buyer has not included these tax losses in his deliberations as to price. Alternatively these losses may be used in order to cover underprovisions elsewhere, thereby extinguishing a claim which would otherwise arise under the tax covenant. 8.5 The treatment of such tax losses which are not recognised as an asset in the Completion Accounts will, in the final analysis, be a matter for negotiation between the parties. 8.6 Another example of a Relief which is not a Buyer’s Relief is taxation which is recoverable at Completion but which is understated in the Completion Accounts. This time it is strongly arguable that the Buyer should not be recompensed if a part of this unrecognised asset is subsequently used to cover a problem elsewhere. Such an Understatement of an asset will normally be dealt with within the seller protections, grouped with Overprovisions and Corresponding Savings. 8.7 It is therefore important that both parties should ensure that Buyer’s Reliefs are very tightly defined: this is important as the use of any Reliefs which are not Buyer’s Reliefs are likely to form an exclusion within the tax covenant.
8.8 There are some definitions of Relief which will include amounts recoverable from fellow group companies in respect of group relief which has been surrendered. This therefore
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