Tax impacts of warranty clauses in Slovakia.
Yes, the seller grants warranties or indemnities to the purchaser when acquiring a company.
Yes, the tax treatment depends on the legal classification.
Yes, the classification is relevant.
Not very often.
Yes, it is.
No such specific distinction in Slovakia, reduction of purchase price is treated differently than the indemnification due to the nature of the arrangements – the indemnification may be regarded as a kind of contractual penalty which is not tax deductible when paid and taxable when received.
It depends on the type of company being sold and statutes of limitation.
No, it is usually part of the SPA + there is no different tax treatment for a separate warranty agreement to SPA.
Full indemnification is most often agreed.
|Price reduction clause||Lower acquisition value of shares||Lower acquisition value of shares|
|Indemnification clause||Taxable income (21%)||Taxable income (19% or 25%)|
|Personal Income Tax|
|Price reduction clause||Lower capital gain||Lower capital gain|
||Non-deductible cost||Non-deductible cost|
|Price reduction clause||No impact|
|Indemnification clause||No impact if not collected by the Target, otherwise taxable income.|
Zuzana Blazejova - KPMG in Slovakia