5.5 This section should therefore be included as a Buyer’s Indemnity in the circumstances when the Seller Company has received assets in a non-qualifying reconstruction from the Company prior to Completion and the tax remains unsettled by the Company at Completion. 5.6 It is more likely that the Seller requires protection in respect of transactions which take place within the Buyer group: if the Buyer has carried out a reconstruction prior to Completion it is possible that the Company may become indirectly liable in due course. As the terms of the main covenant will include tax payable directly and indirectly by the Company arising in respect of events prior to Completion, there is an effective need to carve out liabilities arising from secondary tax in respect of the Buyer group. 5.7 This protection is normally included as an exclusion in respect of Tax which arises in the Buyer’s Group, and this is covered in 3.1.16 of the sample covenant in chapter 5. If the exclusion in paragraph 3.1.16 is narrowed so that it is focused only on the single issue of the small companies rate of corporation tax it is important that the counter- covenant is broadened to protect the Sellers from tax which originates in the Buyer’s group but is not settled by them. Otherwise the wording of a standard covenant could, quite unwittingly enable the Buyer to make a claim for such Taxation from the Sellers. 5.8 Section 139(7) provides that any person paying any tax under this section shall be entitled to recover from the chargeable company a sum equal to the tax paid together with any interest paid by him. 6.1 Section 189, TCGA deals with capital distributions: these are defined in Section 122, TCGA as any distribution, including a distribution in a winding up or dissolution in money or money’s worth, but excluding any distributions which are treated as income in the hands of the recipient. 6.2 If a shareholder receives a capital distribution he may be assessed to the tax on the underlying chargeable gains made by the company, if the company does not settle the tax in question. The shareholders at risk are those who control the company on their own, or in conjunction with people connected with them, or shareholders who control a company by virtue of acting together. 6.3 As an example, Mr and Mrs White own the entire share capital of Rishangles Triangle Limited; they use informal winding up procedures together with the concessionary treatment set out in Extra-Statutory Concession C16. The first property owned by the company is distributed to Mr and Mrs White as a capital distribution in specie. In addition to this they receive £250,000 in cash as a further capital distribution, representing the disposal proceeds from the second property owned by the company. Under the provisions of Section 189, they will be liable for the tax owing by the company on the disposal of both the first property and the second property to the extent that the tax is not settled by the company. 6 Section 189, Taxation of Chargeable Gains Act 1992
6.4 Further examples of capital distributions are shares or assets transferred in a demerger, or in a Section 110, Insolvency Act, Reconstruction. It is therefore possible
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