Tax indemnities: lessons from recent litigation

For the principals negotiating private M&A transactions the key considerations around the allocation of tax risk between the parties can often be restricted to known ‘big ticket’ items and picking a point in time at which tax risk in the target company or companies more generally transfers from seller to buyer. Even when operating in the private equity marketplace (where the recent trend has been to utilise so-called ‘synthetic’ tax covenants negotiated directly between the buyer and an insurance provider or to execute a short-form tax indemnity between the buyer and seller on which a buy-side insurance policy is then super-imposed) a series of recent cases has shown that proper advice on the drafting and implementation of clauses dealing with...