• Service: Tax, Corporate Tax
  • Type: Regulatory update
  • Date: 14/07/2014

Tim Lynch

Tim Lynch
Partner, Tax

+61 7 3233 9341

Kristen McIver

Kristen McIver
Senior Manager, Corporate Tax

+61 7 3233 3149

TSAs & clear exits – practical tips 

by Tim Lynch and Kristen McIver, Corporate Tax Specialists

In February, Julian Humphrey and Jeremy Geale published an article urging tax consolidated groups to give their tax sharing agreements (TSA) a health check and to review the allocation methodology.

Our recent experience is that a clear exit is theoretically possible, but practically very difficult. Some of the practical difficulties are often overlooked.


Responsibility for clear exit lies with the vendor, but the consequence of not achieving a clear exit lies with the purchaser. A purchaser placing primary reliance on clear exit (as opposed to, say, tax warranties or indemnities) must have full oversight of process.


It goes without saying that this process must carefully determine which tax-related liabilities and periods are covered by the TSA and the methodology required to determine the reasonable allocation of each - including how each will be documented (even if there’s a nil liability).


Contribution amount formulas in TSAs frequently refer to the tax position of all the members of the vendor’s tax group, not just the sale entities. What is the impact of a subsequent amended assessment in relation to an unrelated matter on the target entity’s contribution amount? Is the final contribution amount reasonable. Consider carefully the pay as you go (PAYG) instalment and loss allocation mechanisms in that formula.


It is highly unusual for all the information in respect of the non-sale entities be made available to the purchaser. Will you be allowed to undertake any due diligence procedures in respect of the non-sale entities and will group information required per TSA be shared?


Share sale agreements usually require draft clear exit calculations to be provided to the purchaser in the days prior to completion. However, consider an earlier 'dry run' of the process to flush out any issues (including the purchaser having the opportunity to review all notices, calculations etc.)


Finally, check when each member (not just the sale entities) acceded to the TSA. A significant gap between an entity joining the tax group and acceding to the TSA may prevent any entity achieving a clear exit for the relevant tax period.


Share this

Share this


Our Tax team assists with corporate tax, transfer pricing, indirect tax, global mobility, R&D incentives, superannuation and more.

Corporate Tax

At KPMG we combine an in-depth knowledge of corporate taxation issues with our understanding of how tax fits into the broader picture.