Classification: Under the Radar
Section: Purchase and Sale
Negotiation Time: Minimal
Transaction Costs: Insignificant
Major Impact: Deal Value

Withholding Tax

What is This? Sometimes a transaction requires the Buyer to withhold a portion of the Purchase Price for tax purposes (e.g. if the Seller is a foreign person or entity). This provision clarifies whether withholding is necessary and, if so, whether the withheld amount is included in the stated Purchase Price.

The Middle Ground: This section allows the Buyer to withhold from the Purchase Price all Taxes that the Buyer is required by law to withhold or, alternatively, waives the withholding requirement based on a statement by the Seller that no withholding is required.

Purpose: If the Buyer is required to pay withholding tax it will naturally want to reduce the price actually paid to the Seller by the taxes due. The parties include this provision to avoid disputes over whether the agreed upon Purchase Price includes withholding tax or must be “grossed up” to cover such tax. In other words, this provision is included purely for the sake of clarity, and the parties will likely spend no time actually discussing it with one another.

Buyer Preference: The Buyer will want this provision included to avoid a potential dispute, but it need not include any special terms over and above the standard language.

Seller Preference: None.

Differences in a Stock Sale Transaction Structure: None.


We want The Middle Ground to be an ongoing dialogue for and resource to the lower middle market M&A community. The outline above is generally applicable, but there is always specific case law and nuance around certain industries that can be useful in helping buyers and sellers come together. If you are a lawyer or deal professional, we encourage you to add your perspective below.