Both the compensation clause and the seller`s guarantees are time-limited and should not last longer than the expiry of the company`s tax commitments. In order to ensure a successful potential claim, it is important that the seller`s guarantees provided to the buyer are not based on subjective factors, i.e. on the seller`s knowledge, familiarity with the rules in force or his knowledge of certain circumstances. Examples of expressions used to weaken the strength of warranties are „to the best of the seller/management of the business“ or „the seller is not aware of it.“ A tax file provides for situations in which the seller`s liability for the company`s underpaid tax can be triggered, for example. B in the case of a tax check with the company that covers certain taxes or tax matters, or the challenge to the amount of tax not paid by a tax authority or the refusal of a tax authority to grant a refund of VAT to the company, etc. When a SPA is accompanied by a tax deed, it is clearly indicated, in the event of a particular event, how it should be managed and how parties should cooperate when a tax dispute arises with the tax authorities, for example. B which of the parties will settle the dispute. The other issues agreed in a tax deed may be to keep the other party informed of the status of any case that may influence its financial accounts related to tax guarantees, provisions relating to the acquisition and counting of the costs of these cases, or formal appeal decisions. In addition, the parties may decide to include a compensation clause in a tax notice and not the associated GSB. The use of merger representations and guarantees for mergers and acquisitions of private companies is changing significantly. Both strategic and private equity buyers have become increasingly comfortable using such insurance for their acquisitions, providing reasonable benefits to the buyer and seller in the event of an acquisition. When one of the following provisions is violated, compensation often relays the protection of the non-injurious party: representations and guarantees, alliances, environmental concerns or ongoing litigation.
However, in practice, such a right is possible if the buyer obtains as precise guarantees as possible, as well as the nature of the activities of the acquired business and the information obtained by the buyer during the transaction process, including during the interview with the seller and due diligence (if carried out). Therefore, these guarantees should apply, depending on the situation of general affairs (for example. B correct accounting, compliance with tax payment deadlines and tax evasion of tax returns), but also more specific questions regarding the correct tax treatment of sensitive transactions (for example. B correct application of reduced VAT rates, withholding tax), the establishment of complete clearing documents or the retention of all the documents necessary to require the 0% rate for export transactions or intra-EU deliveries.