3 De Minimis Clauses, Ceilings and Other Limitations
3.1 This clause imports into the tax covenant various clauses included in the main agreement in respect of seller protections. The clauses referred to above will therefore normally be some of the clauses in the seller protection schedule to the share purchase agreement.
3.2 It is generally accepted that the ceiling for claims should be the consideration paid. One possible exception to this is where the consideration is purely nominal as the Company has net liabilities or is incurring significant trading losses. If acting for the Covenantors it is important to make sure that this is included as a term of the covenant, either in the covenant itself, or by being imported. 3.3 It is also mainly accepted that the exclusions for small claims should also apply: the tax covenant should arguably have lower de minimis amounts than the warranties, as there is no need to prove a loss. However, it is our experience that the Buyer will normally accept that there should be some sort of minimum level below which claims are not brought under the tax covenant.
4Treatment of Stub Period
11.3 For the purposes of determining whether a Tax Liability or a Relief relates to a pre or post Completion period, an accounting period of the Company shall be deemed to have ended on Completion.
4.1 This clause is not needed if the transaction relates to Last Accounts, rather than Completion Accounts.
4.2 As previously noted, this clause is helpful in clarifying how matters are to be dealt with in respect of tax liabilities since the date of the Last Accounts.
4.3 It will also be helpful to extend this clause to confirm how the notional carry back of losses from a post-completion period to a pre-completion period are to be treated.
IN WITNESS whereof the parties hereto have duly executed this Deed on the day and year first before written
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