3.3 In situations where the Company is being sold out of a group and a default in paying tax then occurs in that Seller group after Completion, there are circumstances when HMRC could assess that tax on the Company. An example is VAT payable under a group treatment: if the representative company in the Seller’s Group does not pay this liability, it could be visited on other companies in the VAT group treatment. 3.4 In the above example, the Event giving rise to the Tax Liability (that is the default by the other company) clearly took place after Completion and it is therefore outside the main covenant clause. However, the Buyer would not expect to be liable for such a payment and would seek the protection of the tax covenant to cover this risk. 3.5 There are a series of specific circumstances in which HMRC can lift the corporate veil in this way. They are also encountered in the part of the tax covenant dealing with the counter-indemnity and they are more fully explored in Chapter 17. 3.6 Sometimes this clause is restricted to refer to tax which is a primary liability of some other person and the Tax Liability arises on the Company due to a failure by that other person to settle any tax liabilities. We cannot identify circumstances in which it is necessary to narrow the above paragraph. 2.1.3 any Tax Liability of the Company which arises as a result of the grant, vesting, exercise, exchange, release or cancellation of any share options or any awards of shares or interests over shares, where such share options or awards were granted to any employee of the Company at any time on or before Completion; and 2.1.4 any Tax Liability of the Company (including but not limited to any income tax, employer’s and employee’s national insurance contributions and any interest, penalties and other costs for which the Company is or becomes liable under the PAYE system or otherwise) which arises as a result of, in respect of, or by reference to the acquisition of any shares in the Company, any taxable event following the acquisition of any shares in the Company or the disposal of any shares in the Company, where such shares were acquired by any employee of the Company at any time on or before Completion; 4.1 If share options are granted before Completion, but the exercise of the Option takes place after Completion, it is likely that the Event giving rise to the Tax Liability will be considered to be the exercise of the option, rather than its grant. In order to make it clear that such Tax Liability is to be covered within the tax covenant liabilities, this clause. 4Tax Related to Share Options
122
Made with FlippingBook Learn more on our blog