Published Date: 7 Dec 2023
This article discusses some of the tax issues that can arise when deferred consideration is payable by a buyer to a seller under a share purchase agreement. In this article, “deferred consideration” refers to an amount payable by the buyer to the seller for their shares on a deferred basis. The deferred consideration is not contingent on any event occurring, but is paid at a date after completion. Despite being a simple sale structure, deferred consideration can give rise to a range of tax issues relating to the character of the consideration being paid on a deferred basis, including whether the consideration should be characterised as an earnout or as employment income. For taxpayers subject to tax under TOFA, the position can be complex with market value adjustments being required. Finally, this article discusses the tax consequences if deferred consideration is not in fact paid to the seller.
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