In the share purchase agreement, the seller's liability is often limited in time. For example, we often see that a seller's liability for warranties or indemnities expires after, say, 18 months.
For tax debts, however, as a rule a separate term is often applied. In practice, you see many variations included of a limitation in liability during the statutory period.
In this contribution, we will discuss in more detail the time limits that apply in connection with a tax debt and which time limits can apply to the imposition of a tax assessment, as well as which text best suits the limitation of liability if the buyer is assisted in a share purchase agreement.
Post-clearance recovery period
To begin with, a distinction must be made between taxes levied on a tax return basis or on an assessment basis. Assessment taxes include, for example, income tax and corporate income tax. Return-based taxes include, for example, payroll tax and sales tax (VAT).
The authority to impose a tax assessment for both types of tax expires in principle after five years from the end of the fiscal year/calendar year. The deadline for assessment-based taxes, such as corporate income tax, is extended by the extension granted for filing that return. The term for return-based taxes cannot be extended.
If the tax debt has arisen abroad, the authority to impose an additional assessment expires under conditions only after twelve years.
Which text in the purchase agreement?
As discussed above, the time period for imposing a tax assessment can vary fairly widely. Therefore, to encompass all of the above time limits, in the case where the buyer is assisted by us, "the period during which tax assessments, additional tax assessments, additional claims, interest and/or penalties may be imposed, plus (x) months" is often used to designate the time limit for the seller 's liability for tax debts.
Under this term, the terms above (i.e., 5 or 12 years and with possible extension of the term) are then included in one term. The '(X) months' part can still be debated. A seller will want that term to be shorter, whereas a buyer, on the other hand, will want the seller to be liable for tax debts a bit longer after the term has expired. Often 3 or 6 months, for example, is chosen.
