Taxes In Share Purchase Agreements: Pre-Closing Tax Liabilities

In the first installment in an occasional series on taxation issues in share purchase agreements, we discuss the provisions in a share purchase agreement that deal with the pre-closing taxes of the target company.

• Every share purchase agreement includes provisions designed to allocate tax risk between buyer and seller.
• While each agreement is unique in its details, certain themes and concepts are common to most Canadian share purchase agreements.
• One such theme is that buyers do not want to be responsible for taxes that relate to the target's pre-closing period.
• It is fairly simple to delineate between pre-closing and post-closing tax periods as there is a deemed year-end for Canadian income tax purposes upon an acquisition of control.