11 Disclaimer of Capital Allowances
3.1.10 such Tax Liability arises or is increased as a result of a disclaimer of capital allowances by the Buyer after Completion;
11.1 We consider that this specific exclusion is not necessary: the wording above adequately covers this prospect and a specific exclusion for this matter is therefore not needed. However, if the Covenantors insist upon this extra protection, it is difficult to see what other grounds the Buyer would have for objecting.
12 Mitigation
3.1.11 such Tax Liability arises or is increased as a result of a failure by the Buyer to use Reliefs which are available before Completion other than Reliefs from the Buyer’s Group in priority to Reliefs arising after Completion, provided that the Buyer is notified of the possibility of such use at least 30 days before the expiry of any applicable deadlines for such use; 12.1 This is to deal with those cases where there is a potential claim under the tax covenant, due to unforeseen tax liabilities, and the potential tax liability can be extinguished - by the use of losses brought forward, by group relief claims between the Company and its subsidiaries or by group relief claims between the Seller company and the Company.
12.2 This clause does not provide protection to the Sellers if the Reliefs which are being used are Buyer’s Reliefs.
12.3 This is a useful exclusion to provide some protection for Covenantors in respect of some taxed provisions, such as general bad debt provisions. If this exclusion is omitted the Buyer is able to leave such a provision as a general provision for 7 years.
13 Failure to make Elections
3.1.12 such Tax Liability would not have arisen or would have been reduced but for a failure by the Company or the Buyer after Completion to make any election, claim, surrender or disclaimer in relation to Taxation, the making of which is or was taken into account in computing any provision for Taxation in the Completion Accounts or the Last Accounts but only to the extent that the Buyer has been notified in the Disclosure Letter, with specific reference to this clause, of the need to make such election, claim, surrender or disclaimer; .
13.1 This is dealing rather more narrowly with one of the matters which might be embraced within 10 above.
13.2 It is very likely that the Last Accounts will have been prepared on the basis of various claims being made in respect of tax matters.
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