Drafting a tax covenant for a corporate sale to address the risk of unforeseen tax liabilities when the seller group is within the scope of a Pillar Two charge is increasingly relevant since January 2024. For a completion date deal a buyer may want full protection for this risk but harder questions come into play when considering an accounts date deal. Any drafting needs to consider whether: top-up tax liability arises in the ordinary course of business between the accounts date and completion; the impact of jurisdictional blending where top-up tax is calculated on an aggregate basis for a jurisdiction; and whether the target is wholly owned by the target group so compensation takes into account the relevant shareholding percentage. In addition a company in the retained seller group could be subject to a Pillar Two charge referable to a company being sold that is undertaxed. Here a...
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Drafting a tax covenant for a corporate sale to address the risk of unforeseen tax liabilities when the seller group is within the scope of a Pillar Two charge is increasingly relevant since January 2024. For a completion date deal a buyer may want full protection for this risk but harder questions come into play when considering an accounts date deal. Any drafting needs to consider whether: top-up tax liability arises in the ordinary course of business between the accounts date and completion; the impact of jurisdictional blending where top-up tax is calculated on an aggregate basis for a jurisdiction; and whether the target is wholly owned by the target group so compensation takes into account the relevant shareholding percentage. In addition a company in the retained seller group could be subject to a Pillar Two charge referable to a company being sold that is undertaxed. Here a...
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