2.7 If this is a transaction involving Last Accounts then there will also need to be an exclusion relating to transactions in the normal course of business from the Last Accounts Date to Completion. 2.8 It must be remembered that the definition of Tax Liability is very broad, as it encompasses not only tax payments and the related interest and penalties, but also the losses from the four components of Buyer’s Reliefs, namely Deferred Tax Relief, Accounts Relief, Post-Completion Relief and Buyer’s Group Relief.
2.9 It is very important to be content with the definition of Taxation Liability due to its impact in this clause.
2.10 The clause refers to an Event on Completion. This is to cover liabilities which might arise under Section 179, Taxation of Chargeable Gains Act 1992, or other degrouping charges. These are explored in chapter 8 under the definition of “Event”. 2.11 It is our opinion that the words above “ whether alone or in conjunction with other circumstances ” should be deleted: they introduce an uncertainty which is best excluded. 2.12 We question whether it is necessary to say “ whether or not such Tax Liability is primarily chargeable against or attributable to any other person ” as this point has already been included in the definition of Tax. 2.13 As this main covenant is referring to Tax Liabilities arising from events on or before Completion we do not consider that it is necessary to enter into complex debates as to whether the imposition of penalties after Completion is an Event which is caught by the above. The imposition of the penalties (and the interest imposed for the period between when the tax was due and when it was paid) is clearly referable to the failure to pay the tax in question. Wording that is sometimes used is “.... any Taxation payable in respect of or arising from any Event occurring before Completion ....”. This helps to reinforce the point that interest imposed by a Tax Authority for a period which partly includes a post-completion period is also covered.
3 Post Completion Liabilities
2.1.2 any Tax Liability of the Company arising after Completion solely as a result of the relationship for Tax purposes of the Company with any person before Completion; and 3.1 Completion is the normal cut off point for Tax Liabilities under the tax covenant, for the obvious reason that profits and the related tax liabilities before Completion are reflected in the Consideration payable to the Sellers. After Completion these are matters for the Buyer. However, this is a rule that does have some exceptions, apart from the question of interest referred to above.
3.2 There are various sections of the taxing statutes which enable HMRC to assess one company in a group with the tax liabilities of another in certain defined circumstances.
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