12.3 Under Paragraph 8(2) of Schedule 34, Finance Act 2002, if the company with the primary liability does not pay the Stamp Duty, the liability can be charged, broadly speaking, to the following:
12.3.1 the transferor company;
12.3.2 any company which was, at the relevant time, above it in the group structure;
12.3.3 any person who, at the relevant time, was a controlling director of the transferee company or of a company having control of the transferee company.
12.4 The relevant time is any time between the date of transfer and the transferee leaving the transferor group (Paragraph 8(3)(a), Schedule 34, Finance Act 2002).
12.5 A company is above another company in the group structure if it is the parent of the transferee company or the parent of another company that is above that company in the group structure (Paragraph 8(3)(b), Schedule 34, Finance Act 2002). 12.6 The Buyer protections in the tax covenant are normally given under the provision which includes all taxation payable by the Company: the tax covenant will be worded so that the Seller is liable for tax liabilities of the Company, whether the Company has the primary or the secondary liability. 12.7 The Seller needs protection if such a transfer of property has taken place into the Company prior to Completion and the stamp duty payable has been provided for but not paid. (Alternatively, the Seller could arrange for the tax in question to be paid to HM Revenue and Customs prior to completion.) 12.8 At first sight there is not the same need for protection from a secondary liability: if the Buyer’s group had made a transfer of a property to a subsidiary in the three years prior to Completion, and if that subsidiary had then left the Buyer’s group after the transfer, but prior to Completion, the Company would not be amongst the persons with a potential liability as referred to in Paragraph 8(2) Schedule 34, Finance Act 2002. 12.9 There is however a circumstance in which the Company could be liable under Section 111, Finance Act 2002: if the Buyer’s group has made an intra-group property transfer in the three years up to Completion, and the Company is inserted into the Buyer’s group above the transferee company, then there could be a secondary liability on the Company if the transferee company left the Buyer’s group after Completion. The Company would be above the transferee company in the Buyer’s group in the relevant period and it is arguable that the stamp duty in question can be attributed to the transfer of the property to the transferee, rather than to the transferee leaving the Buyer’s group. If such, the Event happened before Completion, and there is a secondary liability on the Company which would be caught by the standard tax covenant. 12.10 Due to the risk referred to in Section 12.9 above, it is wise to include reference to this as an Indemnity from the Buyer - this then stops the Buyer from making a claim under the tax covenant in such a circumstance.
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