Tax Deed
A separate agreement providing indemnity protection for tax liabilities arising from the pre-completion period.
Full Definition
A Tax Deed (or Tax Covenant) is a separate agreement in UK M&A transactions providing the buyer with indemnity protection against tax liabilities relating to the pre-completion period.
Why a separate Tax Deed:
- More comprehensive than general warranties
- Pound-for-pound indemnity (not damages)
- Specific tax-focused provisions
- Longer limitation period (typically 7 years)
- Specialist tax adviser involvement
Typical Tax Deed coverage:
- Pre-completion tax liabilities
- Unpaid tax at completion
- Tax arising from pre-completion events
- Loss of reliefs or allowances
- Secondary tax liabilities
- Stamp duty and VAT exposures
Key Tax Deed provisions:
- Scope of indemnity
- Conduct of tax claims
- Buyer's covenant (no voluntary actions increasing liability)
- Overprovision and relief mechanics
- Time limits and claim procedures
- Grossing up for tax on indemnity payments
Negotiation points:
- Scope of excluded matters
- De minimis and threshold provisions
- Conduct provisions for disputes with HMRC
- Information and cooperation obligations
- Secondary liability coverage
The Tax Deed is typically negotiated by tax advisers and sits alongside the main SPA.
Related Terms
Indemnities
Contractual promises to compensate the buyer pound-for-pound for specific identified losses or liabilities.
Share Purchase Agreement (SPA)
The definitive legal contract governing the sale and purchase of shares in a company.
Completion
The legal transfer of ownership when all conditions are satisfied and the transaction formally closes.
Warranties
Contractual statements by the seller about the business, breach of which may entitle the buyer to damages.