Tax Clawback Agreement

An arrangement whereby the tax benefits received from a given venture are reinvested in the venture to cover any cash shortages. A tax clawback is just one of many types of "clawback" arrangements, which cover various distributions such as profits, dividends or even stock distributions.

Along with dividend clawbacks, tax clawbacks are among the most popular type of clawback arrangements, providing instant and easy access to additional financing. Clawbacks are also used to describe what, in effect, amounts to a return of previously distributed money. For example, when Troubled Asset Relief Program (TARP) funds were used (in certain cases) to finance executive bonuses in 2008, it prompted some in Congress to advocate a tax clawback, whereby the executives in question would be forced to pay back some of the bonus money in the form of higher taxes.