Client letter explaining the tax covenant and the tax warranties
Client letter explaining the tax covenant and the tax warranties

The following Tax precedent provides comprehensive and up to date legal information covering:

  • Client letter explaining the tax covenant and the tax warranties
  • 1 The tax covenant
  • 2 The tax warranties
  • 3 Instructions

[Law firm’s letterhead]

[Addressed to client]

Acquisition by [name of buyer] (the Buyer) of [name of target company] (the Company) from [name of seller] (the Seller)—tax [deed of ] covenant and tax warranties

I [attach OR enclose] for your review a first draft of the tax covenant and the tax warranties. It is standard in an acquisition of a private limited company for protection to be provided to buyers both under a tax covenant and tax warranties.

Below is a brief explanation of:

  1. the purpose of the tax covenant and the tax warranties

  2. specific procedural matters covered by the tax covenant, and

  3. a list of specific questions on which I would be grateful for your instructions

    1. 1

      The tax covenant

      The tax covenant allocates responsibility between the Seller and the Buyer for tax liabilities arising in the Company or members of its group (together referred to as the Target Group). As is market practice where a target company or target group is valued on the basis of [accounts drawn up as at completion (Completion Accounts) OR the last audited accounts (Accounts) OR the locked box accounts (Accounts)] as we understand to be the case in this acquisition, this tax covenant makes the Seller liable (subject to exclusions) for those tax liabilities occurring (or treated as occurring) on or before [[the date of completion (Completion) OR the date to which

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