2.11 It therefore appears that the situations in which a Buyer’s indemnity should be provided to the Seller in respect of Section 767A, ICTA are only those in which the Company or a subsidiary has become dormant or virtually dormant prior to Completion and there are outstanding corporation tax liabilities. These very peculiar circumstances can then be changed by the Sellers ensuring that any such tax liabilities are settled prior to Completion, as this would not affect the level of the group net assets. 2.12 Section 767B(2) provides that any person making a payment under Section 767A and Section 767AA shall be entitled to recover an amount equal to the payment from the relevant company. Such recovery is of tax that has been paid by such person. There must be doubts as to the nature of such recompense for tax purposes, but HMRC have confirmed that a payment by the Company to reimburse the Seller is not taxable on the Seller. A payment expressed to be additional consideration paid by the Buyer to the Sellers is likely to be taxable unless the substantial shareholdings exemption, or some other exemption applies. 3.1 Section 767AA is based on the concept of a reasonable inference that the change of ownership of the Company was linked to an expectation by the Buyer or the Seller that the tax liabilities would not be met in full (Section 767AA(2), ICTA). 3.2 In contrast to Section 767A, this section is dealing with corporation tax in respect of accounting periods ending on or after the change of control. The Sellers potentially caught are the same as in Section 767A, described above. 3.3 This is also an anti-avoidance section: as a variation on the scheme blocked by Section 767A, tax liabilities were held over or rolled over, so that they crystallised after the change of ownership had taken place. This is the reason for the title of this Section, “Change in company ownership: postponed corporation tax”. 3.4 The scope of Section 767AA is wider and more uncertain, as it depends on what is a reasonable inference. The strict interpretation of the Section would indicate that an entirely innocent Seller could be liable for unpaid corporation tax if the Buyer entered into the transaction on the assumption that the liability to future corporation tax was unlikely to be met. 3Section 767AA, ICTA
3.5 A counter-indemnity with regard to Section 767AA is therefore an appropriate feature of a tax covenant.
3.6 As noted above, Section 767B(2) provides that any person making a payment under Section 767A and Section 767AA shall be entitled to recover an amount equal to the payment from the relevant company.
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