Reconciling Post Campaign Invalid Traffic Clawbacks with Sovereign Tax Certificates
Reconciling post-campaign IVT clawbacks requires contractually mandated gross-value credit notes and pre-settlement telemetry to avoid permanent tax loss.
Gross up Contractual Clause
Meaning
Legal provision in an agreement requires the payer to increase the total payment amount to ensure the recipient receives a specific net sum after all taxes are deducted. A gross up contractual clause is common in international service contracts where the local government imposes a withholding tax. This clause protects the service provider’s margin by shifting the tax burden to the buyer.
Financial Liability
Calculating the correct grossed up amount involves a formula that accounts for the tax on the tax itself. Under a gross up contractual clause, the payer must determine the base amount that, when reduced by the withholding percentage, equals the agreed net fee. This often results in a significantly higher total cost for the purchaser than the nominal price of the service.
Negotiation Point
Inclusion of this language is a frequent subject of debate during the contract drafting phase. A buyer may resist a gross up contractual clause to avoid unpredictable tax costs that depend on future legislative changes. Conversely, the vendor may refuse to provide the service without a guarantee of a fixed net return.
Tax Documentation
Compliance with the local revenue office requires the payer to report the full grossed up amount as the taxable base. Even with a gross up contractual clause in place, the payer must still issue a tax certificate to the vendor showing the amount paid to the government. The vendor may then use this certificate to claim a credit in their own country, which sometimes results in a windfall if they are also protected by the gross up.