date | theme

24. November 2022 | Sub-annual division of profits at the GmbH sale

25. November 2022 | Assignment of profit in the GmbH sale

7 December 2022 | Tax Clauses for the GmbH Purchase: Regulations for the audit (this contribution)

29. January 2025 | Changes to the audit – this is new in 2025

When selling a company, many aspects are incorporated into the purchase contract. Tax clauses are particularly important. They regulate the extent to which purchasers are affected by possible tax back payments. After all, company audits that take place after the acquisition can lead to tax back payments at an acquired GmbH, although they are due to actions that the previous management is responsible for. This is so important for corporations because they themselves bear the tax liability for income taxes through direct taxation as a legal person. However, if tax clauses are included in a GmbH sales contract, then the sellers should also pay attention to the protection of their interests. Only if they are allowed to participate in audits and raise objections can they avoid that the buyers pass on tax back payments to the sellers obliged to pay compensation during negotiations with the tax office.

Anyone who wants to sell a company thinks primarily about the proceeds from the sale. In the second place, one might think of the taxes that accrue on the sales profit. Some may be more concerned about the future of the company out of a sense of responsibility. Others, on the other hand, could bring their claim to the current profit of their company at the time of the change of ownership to the forefront. But what many hardly consider at their first company sale are the tax risks that the acquirer of a company acquires. Even some buyers come to this idea at best only as a side consideration to the company acquisition.

Even if one perceives tax consequences as an important aspect when buying or selling a company, this has different legal consequences for individual companies, partnerships and corporations. In the case of partnerships, this is relatively easy to resolve, because transparent taxation always directly affects the acting persons: the sole proprietor or the co-entrepreneur. With a GmbH or other corporations, however, this is a little more complicated. Because as a legal person, the respective corporation bears the corporate taxes. However, if these taxes are caused by actions caused by the seller, then the buyer also acquires the risk that his newly acquired company will have to pay for taxes that the seller should actually be responsible for.

This also depends on the type of company sale. Because in an asset deal, the seller continues the corporation, he also indirectly bears their tax back payments. If, on the other hand, you have agreed on a share deal, the company itself comes into new hands. And this also assumes the risk of possible tax back payments. So we ask: is this fair?

I think everyone who reads this question at the end of the second chapter knows the answer. But when does this risk materialize? In general, this risk turns into real disadvantages (or even advantages) if a tax review takes place. This is the case in particular in the case of an external inspection by auditors.

Let us take the following example: Mrs. Neu buys the Re-Visio GmbH from Mr. Alt on 31.12.2022. An operational audit will take place at the beginning of 2024. The tax office notes that a back payment is necessary for corporate and business tax. This additional payment is related to balance sheet estimates made by Mr. Alt as Managing Director for the 2021 investment period. For Ms. Neu, this initially remained unrecognized during her examinations in the run-up to the sales negotiations. Now, however, her newly acquired company is to pay back taxes that her predecessor had caused long before her.

In order to prevent such a case and many similar ones, so-called tax clauses are added in the GmbH purchase contract. In particular, they regulate who actually pays for tax back payments to the tax office. Because it is clear here that in the example described, the Re-Visio GmbH has to pay the taxes itself. Thus, the relevant tax clauses concern any compensation paid by the seller to the buyer. Whether Ms. Neu actually puts the taxes reimbursed by Mr. Alt into the GmbH in order to compensate for the loss of liquidity, however, is then at her discretion.

At least such compensation payments retroactively reduce the acquisition costs. This may have later consequences if, for example, Ms. Neu sells the GmbH or moves abroad and she bears the exit tax. For Mr Alt, on the other hand, his compensation payments reduce the sales profit, so that he can also claim tax effects. Consequently, he can expect a tax refund.

Apart from the fact that tax clauses regulate compensation payments in the case of back tax payments, there are other aspects that can come into play. In addition to protecting the interests of the purchasers, the interests of the sellers are also affected in company audits.

For example, in the audit mentioned, which covers the years 2021 to 2023, Ms. New could propose as a compromise in her negotiations with the tax office that back payments for 2021 and 2022 are acceptable to her, provided that the tax office in return considers taxation in relation to the financial year 2023 more favourably. After all, Ms. Neu knows that she will receive compensation from Mr. Alt for the tax back payments that date back to the financial years 2021 and 2022.

Another possibility for Ms. Neu to benefit is that, in the event of retroactive activation beyond the compensation payment, she also gets the opportunity to benefit from the future depreciation for tax purposes.

Therefore, it is also important for the seller that tax clauses in the GmbH sales contract also protect his interests. In this example, it is specifically about him being allowed to participate in the audit. Because this gives him the opportunity to correct the tax-relevant facts in the context of the audit and thus to prevent re-taxation. In this way, he can influence the amount of his compensation to Mrs Neu.

If one continues the idea, further tax clauses should be added. For example, the GmbH sales contract should contain tax clauses that also grant the seller further-reaching rights in relation to the challenge of the tax notices, at least insofar as they provide for the re-taxation of financial years that precede the transfer of business. After all, a seller can only come to his right if the acquirer also grants him a right to challenge the tax return.

We hope we could draw your attention to an important aspect of the GmbH purchase agreement. So, on the one hand, it is about protecting financial interests on the part of the acquirers. Because of course they reject the assumption of tax back payments, which any previous owners have to answer for. This is all the more important because, purely legally, their newly acquired GmbH is taxable with regard to income taxes and this remains even after the company transfer.

On the other hand, certain tax clauses are also important for the seller side. If a sales contract contains tax clauses which, if necessary, regulate compensation payments in the case of back tax payments, then the vendor should also be given the right to influence whether and, if so, to what extent these compensation payments are incurred.

It always depends on the respective perspective. If a purchase contract is concluded without containing tax clauses, this means for the sellers that they implicitly transfer the risk of tax back payments to the buyers. In fact, it is often the case that this circumstance is initially unrecognized when designing a draft purchase contract. So if a seller takes over the preparation of the draft, then he can exclude any tax clauses. If the buyers then think when considering the draft that tax clauses should be included in the contract, the seller can cite this as a bargaining chip for further concessions by the buyers.