To examine the underlying importance of the parties, the correspondence that is shared between the parties in the negotiation process and in the development of the GSB will be important. It may therefore be that the interpretation that a Dutch court has finally granted to a certain tax clause in a GSB may depart from the literal text. Many sellers are becoming more interested and it is increasingly common for sellers to be entitled to compensation for an after-tax tax period. As a result, insurance and tax guarantees in many share purchase contracts play little or no importance in the buyer`s compensation process. In addition to the caps, an individual de minimis amount is regulated by the BSB, so that the seller is not liable for claims, unless the amount of liability exceeds a certain amount, which can be determined either as a specified amount or as a percentage of the purchase price (usually 0.1% to 1.5%). In the context of a GSB, it is possible to either identify specific offences that would give rise to claims for compensation, or to develop a general clause for infringement and compensation. The indemnity clauses govern the seller`s liability to keep the buyer free of any loss or debt related to the breach of insurance and guarantees that, depending on the agreement of the parties, may or may not include indirect losses and unre generated losses. Indeed, most of each sales and sales contract is devoted to these provisions, as well as trying to limit their application over time, setting a threshold or limiting the collection amounts to a fixed amount, but how do the terms “guarantee,” “representation” and “compensation” differ and what are the consequences of possible differences? This may come as a surprise to some, but tax guarantees and guarantees do not play a decisive role in the buyer`s compensation for the objective`s prior tax commitments. While a violation of tax guarantees can result in an economic loss compared to a pre-delay, any improvement related to this infringement is at best twice as high as in the context of tax compensation (in most cases, it would be preferable for a buyer to claim compensation in connection with tax compensation rather than to violate tax guarantees). In this context, tax guarantees and guarantees fulfill other objectives of the purchaser, including a due diligence function, by offering a “Walk away” right where there are material inaccuracies in the representations found between the signature and the closing, and possibly a right of compensation for taxes that arise within an additional period.
In an upcoming edition of this series, we will discuss in more detail the role of tax representations. The relative importance that a buyer retains of this function depends on the extent to which he is otherwise able to obtain comfort in these matters by his own duty of care. In many transactions, the buyer retains an audit firm to submit a full report on “quality of merit” and to pay close attention to the tax side. In order to ensure the best possible protection against the existing or previous tax arrears of the business acquired prior to the acquisition, the buyer will generally endeavour to obtain certain guarantees and/or tax compensation from the seller. As a result, the purchaser is generally not required to rely on tax guarantees and guarantees when unanticipated taxes are generated during a final tax period. In such situations, pre-closing tax compensation is generally the preferred basis for collection.