In Minera Las Bambas and another v Glencore Queensland and others [2019] EWCA Civ 972 (14 June 2019), the Court of Appeal found that tax was only payable under the terms of a share purchase agreement (SPA), once a court had upheld an assessment issued by the tax authorities.
Glencore had sold 100% of the shares in Xstrata (which owned a mining project) to Minera under an SPA. The mining project involved the resettlement of a rural community to a new town built for this purpose. An agreement between the community and Xstrata provided that the community was to vacate the land and transfer it to Minera, which was to transfer land to the new town, in exchange, under a ‘swap agreement’. No VAT was paid by Minera in relation to the property transfer.
The SPA contained a tax indemnity which provided that the sellers should indemnify the purchasers in relation to any tax payable. The Peruvian tax authorities considered that VAT was due and an appeal was lodged before the Peruvian tax court. The issue was whether the relevant VAT was ‘payable’ for the purpose of the deed of indemnity so that Glencore should pay the relevant amount to Minera.
The court observed that, under Peruvian law, an assessment establishes a tax liability, which remains an actual liability unless and until a tax court sets it aside. However, the liability is not enforceable; the tax cannot be collected while the assessment is under appeal.
The court found that, in the context of the SPA, ‘payable’ means that ‘there is an enforceable obligation to pay an amount of tax and not merely that a liability to pay an amount of tax has been established’. The court referred to the fact that the relevant clause created an indemnity, which is ‘a promise to prevent the indemnified person from suffering loss’. It added that it would ‘not make commercial sense to require the sellers to pay an amount of money to the purchasers which is not at present needed, and may never be needed, to satisfy a liability to pay tax’.
The court also found that rejected VAT credits did not amount to ‘tax payable’. It observed: ‘Conceptually and as a matter of language, the loss of a right to receive repayment of a tax credit cannot, of itself, be characterised as the incurrence of an obligation to pay tax.’
Why it matters: This decision was an exercise in the interpretation of an SPA and the above summary only covers the salient points. It also is a reminder that the SPA is binding between the parties. The court observed: ‘Within very wide limits, English law leaves the parties free to make their own bargain and affords them the respect, when they have entered into a formal, professionally drafted and commercially negotiated agreement, of treating them as having meant what they said.’ This remains so where, as was the case here, the SPA allocates more risk to the purchaser than they would bear under common law.
In Minera Las Bambas and another v Glencore Queensland and others [2019] EWCA Civ 972 (14 June 2019), the Court of Appeal found that tax was only payable under the terms of a share purchase agreement (SPA), once a court had upheld an assessment issued by the tax authorities.
Glencore had sold 100% of the shares in Xstrata (which owned a mining project) to Minera under an SPA. The mining project involved the resettlement of a rural community to a new town built for this purpose. An agreement between the community and Xstrata provided that the community was to vacate the land and transfer it to Minera, which was to transfer land to the new town, in exchange, under a ‘swap agreement’. No VAT was paid by Minera in relation to the property transfer.
The SPA contained a tax indemnity which provided that the sellers should indemnify the purchasers in relation to any tax payable. The Peruvian tax authorities considered that VAT was due and an appeal was lodged before the Peruvian tax court. The issue was whether the relevant VAT was ‘payable’ for the purpose of the deed of indemnity so that Glencore should pay the relevant amount to Minera.
The court observed that, under Peruvian law, an assessment establishes a tax liability, which remains an actual liability unless and until a tax court sets it aside. However, the liability is not enforceable; the tax cannot be collected while the assessment is under appeal.
The court found that, in the context of the SPA, ‘payable’ means that ‘there is an enforceable obligation to pay an amount of tax and not merely that a liability to pay an amount of tax has been established’. The court referred to the fact that the relevant clause created an indemnity, which is ‘a promise to prevent the indemnified person from suffering loss’. It added that it would ‘not make commercial sense to require the sellers to pay an amount of money to the purchasers which is not at present needed, and may never be needed, to satisfy a liability to pay tax’.
The court also found that rejected VAT credits did not amount to ‘tax payable’. It observed: ‘Conceptually and as a matter of language, the loss of a right to receive repayment of a tax credit cannot, of itself, be characterised as the incurrence of an obligation to pay tax.’
Why it matters: This decision was an exercise in the interpretation of an SPA and the above summary only covers the salient points. It also is a reminder that the SPA is binding between the parties. The court observed: ‘Within very wide limits, English law leaves the parties free to make their own bargain and affords them the respect, when they have entered into a formal, professionally drafted and commercially negotiated agreement, of treating them as having meant what they said.’ This remains so where, as was the case here, the SPA allocates more risk to the purchaser than they would bear under common law.
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