Tax Claims In M&A Transactions: Practical Issues And Potential Pitfalls

Tax warranties and indemnities in M&A transactions are intended to allocate the risk of unforeseen pre-completion tax liabilities between the buyer and seller. Typically, the buyer will have rights, subject to certain exceptions, to recover amounts in respect of pre-completion tax liabilities that were not provided for in the accounts relevant to the sale price.

Tax claims are usually subject to detailed notification and conduct of claim requirements (as well as requirements under English contract law). When a potential tax liability arises, whether a tax indemnity works as intended may depend largely on the extent those requirements are complied with.

In this briefing, we explore the key issues relevant to (from a buyer perspective) getting a claim right from the outset and (from a seller perspective) potential defences. We look at the tax indemnity in this briefing. Similar issues also arise in relation to tax warranties. If the transaction is insured, it is