No guarantee of tax consequences: Overview, definition, and example
What is no guarantee of tax consequences?
No guarantee of tax consequences is a clause in a contract that says neither party is promising any specific tax outcome as a result of the deal. In other words, if you enter into an agreement—like selling a business, issuing stock, or receiving a payment—you’re responsible for your own tax situation, and the other party isn’t liable if it turns out differently than you expected.
In plain terms, it means, “We’re not tax advisors, and we’re not making any promises about how this will affect your taxes.”
Why is no guarantee of tax consequences important?
Tax laws are complex and change often. The same deal can have different tax outcomes depending on your business structure, location, and timing. Including a no guarantee of tax consequences clause helps protect the parties—especially the one preparing the contract—from being blamed if the other side faces unexpected taxes.
This clause encourages each party to seek their own legal or tax advice before signing. It’s common in business sales, mergers, compensation agreements, and investment documents—anywhere taxes might be involved.
Understanding no guarantee of tax consequences through an example
Let’s say your company sells shares to an investor. Later, the investor finds out they owe more in capital gains tax than expected and claims you should have warned them.
If your agreement included a no guarantee of tax consequences clause, you’re protected. The investor can’t argue that you guaranteed a certain tax outcome, because the clause made it clear that they were responsible for getting their own tax advice before proceeding.
It sets the expectation that both parties are entering the deal with their eyes open.
An example of a no guarantee of tax consequences clause
Here’s how this clause might appear in a contract or transaction agreement:
“Each party acknowledges that it has not relied upon any representations or warranties by the other party regarding the tax consequences of this transaction. No party guarantees any particular tax treatment, and each party is advised to consult its own tax advisor.”
Conclusion
No guarantee of tax consequences is a protective clause that puts the responsibility for tax outcomes where it belongs—on each party individually. It helps avoid disputes and makes sure everyone understands they need to consult their own tax professional.
If your contract could affect taxes in any way, this clause is a smart way to manage expectations and reduce risk for your business.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.