Cross Border Joint Venture Tax Lien Indemnity Basics
Cross-border tax lien indemnities protect joint venture equity by pairing pre-closing liability carve-outs with liquid escrows and unilateral set-off rights.
Abgabenordnung Section 75
Meaning
Statutory provisions within German tax law establish secondary liability for an acquirer when a whole business unit is transferred. Under the abgabenordnung section 75, the purchaser of a company becomes liable for the taxes and tax deductions of the previous owner. This obligation applies specifically to liabilities arising during the year preceding the transfer and those assessed up to one year after the date of acquisition.
Liability Trigger
The obligation is triggered by the transfer of an enterprise or a separately managed division in its entirety. It operates regardless of the intentions of the parties or the specific terms of the purchase agreement. While a buyer might attempt to exclude certain liabilities in the contract, such private arrangements do not override the statutory effect of the abgabenordnung section 75 toward the tax authorities.
The transfer of the essential assets of the business suffices to activate this provision.
Recovery Limitation
Government claims against the acquirer are limited to the value of the assets received at the time of the transaction. This ceiling ensures that the new owner is not held responsible for debts exceeding the actual worth of the acquired enterprise. Protection remains available only for taxes that relate to the operation of the business itself.
Acquisition Strategy
Due diligence processes must account for these potential liabilities to prevent unexpected claims from the fiscal office. Buyers often require specific indemnities or holdbacks in the purchase price to mitigate the risk of the abgabenordnung section 75.