UK and International Tax news

High Court Decision In SPA Gross Up Clause Case

Sunday 23rd August 2020

The High Court has recently issued its decision in a case involving an SPA gross up clause referring to ‘subject to tax’.

In AXA SA v Genworth Financial International Holdings LLC and others [2020 EWHC 2024 (Comm)] the HC had to consider the application of a tax gross up clause in respect of a payment made under a share purchase agreement.

AXA sought a payment of £500m under Clause 10.8 of the SPA and an entitlement to a gross up payment at the UK corporate tax rate of 19% or, alternatively, at a combined rate of 32.023% in respect of French corporate income tax and social surcharge.

The HC identified, in particular, the issue requiring determination was whether the words “subject to Taxation in the hands of the receiving party” in Clause 18.5 of the SPA meant “within the scope of a Tax and not exempt” regardless of whether that calculation results in any tax ever being payable so that sums payable under Clauses 10.8 or 15.1 fell to be grossed up at the date of their payment, or “actually taxed in hands of the receiving party” so that any additional amount is only payable if and when the recipient is under an enforceable obligation to pay such actual tax.

The HC held that “subject to Taxation in the hands of the receiving party” meant that the tax must actually be due and payable and enforceable.

Right to apply for permission to appeal however was granted.

If you would like to discuss this decision in more detail, please contact Keith Rushen on 0207 486 2378.


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