CHAPTER TEN
THE EXCLUSIONS AND LIMITATIONS
3.1The Covenantors shall not be liable for any Tax Liability to the extent that:
Executive Summary
A It is essential that the exclusions are tailored to the structure of the deal, that is whether or not Completion Accounts are involved.
B The tax covenant is an undertaking to pay, and there is no requirement on the Buyer to prove a loss. It is therefore very important that the exclusions cover those situations where a payment from the Covenantors to the Buyer would not reasonably be anticipated. It is equally important that the exclusions are not so broad that the protection that the Buyer reasonably requires is diminished. C For transactions where there are to be no Completion Accounts, the adviser should discuss the types of transactions which have actually taken place in the period between the Last Accounts and Completion; he should make sure that there are no transactions which may be outside the ordinary course of business. If there are such transactions the treatment of the tax cost in the tax covenant should be agreed. D It is generally accepted that the Buyer should accept the burdens that arise in respect of changes to the taxing regime which come into play after Completion, even if they have retrospective effect. It is therefore only reasonable that the tax covenant results in the Buyer also gaining the benefits of such changes. This requires the Seller protection clauses in respect of Overprovisions and Understatements to exclude any benefits from changes to the taxing regime.
126
Made with FlippingBook Learn more on our blog