Helping Your Deal Execution
Tax Liability Insurance
Why use Tax Liability Insurance?
The global tax system is complex and ever-changing, inherently leading to challenging business decisions for taxpayers and their advisors. Tax liability insurance limits the uncertainty and risk of tax positions – whether in the context of an M&A deal or a strategic position.
Tax liability insurance is an efficient risk management tool that protects against identified, supportable tax positions not qualifying for their intended tax treatment.
In the M&A context, uncertain tax positions often lead to tense negotiations that can force the parties to walk away from a deal. With tax liability insurance, buyers can avoid self-insuring the risk or negotiating an indemnity/escrow and sellers can insulate themselves from an indemnity obligation. Regardless of an opinion’s strength, no tax position is free from doubt. Private letter rulings are not always available and can take time and energy to procure. As a result, tax liability insurance is an ideal solution to protect against a tax position not qualifying for its intended treatment.
Extent of coverage
Subject to certain terms and conditions and satisfactory underwriting, tax insurance policies provide coverage for the tax owed, any associated interest, fines or penalties, and the costs related to defending the position. Coverage may also include a ‘gross-up’ to compensate for any income taxes assessed on the receipt of the insurance proceeds.