{"id":2522,"date":"2023-03-21T09:33:13","date_gmt":"2023-03-21T16:33:13","guid":{"rendered":"https:\/\/www.thor.ca\/blog\/?p=2522"},"modified":"2025-02-12T13:31:00","modified_gmt":"2025-02-12T21:31:00","slug":"quick-update-tax-indemnities-in-share-purchase-agreements","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2023\/03\/quick-update-tax-indemnities-in-share-purchase-agreements\/","title":{"rendered":"Quick Update \u2013 Tax Indemnities in Share Purchase Agreements"},"content":{"rendered":"

Context:<\/strong> Tax-related representations, warranties, and indemnities are of course common in any share purchase agreement (SPA).\u00a0 These contractual provisions are generally designed to ensure that the purchaser of a target corporation is protected against any taxes payable by the target for a pre-closing<\/em> period, the responsibility for which is generally assigned to the seller under the SPA.\u00a0 In some cases, these provisions can surprisingly extend to cover taxes payable for a post-closing<\/em> period as well.\u00a0 The decision in Boliden Mineral AB v. FQM Kevitsa Sweden Holdings AB<\/em>, 2023 ONCA 105, is one such example.<\/p>\n

Ontario Court upholds indemnity for target\u2019s post-closing period tax liability:<\/strong> The target in Boliden<\/em> was an indirectly held Finish subsidiary of a Canadian parent corporation.\u00a0 The target had undertaken a complex restructuring in 2010, which generated large interest deductions and foreign exchange losses.\u00a0 The parent later caused the target to be sold on June 1, 2016, at a time when the target still had substantial unused losses from the 2010 restructuring.\u00a0 Under Finish tax law, these unused losses did not automatically carry forward in the target following the sale, but the target\/purchaser successfully filed an application immediately after the closing for a permit to use those losses.\u00a0 These loss carryforwards were then in fact used shelter the target\u2019s income for 2017 and 2018.<\/p>\n

Unfortunately, in 2018 the Finish tax authorities reassessed the target to deny all the deductions and losses arising from the 2010 restructuring, which reassessment was later upheld on appeal.\u00a0 This reassessment had the effect of generating \u20ac16 million of tax liabilities in the target for its 2012 to 2016 (pre-closing) years and<\/em> \u20ac14,398,435 of tax liabilities for its 2017 and 2018 (post-closing) years.\u00a0 The purchaser then sued the seller in Ontario (the agreed jurisdiction under the SPA) to recover all<\/em> these amounts under the tax-related representations, warranties, and indemnities in the SPA.<\/p>\n

There was ultimately no dispute that the indemnity provisions in the SPA covered the reassessed taxes for the pre-closing period (i.e., before the sale on June 1, 2016).\u00a0 The debate centered on whether the indemnity provisions in the SPA also covered the reassessed taxes for the post-closing<\/em> period (i.e., for 2017 and 2018).\u00a0 The Court of Appeal for Ontario found that the trial judge had committed no reversible error when he held that, yes, the general indemnity provisions in the SPA covered these latter reassessed taxes as well (see para. 21).\u00a0 More specifically:<\/p>\n