Tax rules are famously complex, especially when business operations span multiple jurisdictions. Even with the best expert advice, companies often need to make good-faith judgments about how the rules apply to their business operations. Tax authorities might have a different judgment about how the very same rules apply to the very same business operations and challenge a tax position taken by a company. This results in uncertainties which often cover multiple financial years and involve significant amounts.
In M&A transactions, uncertainty surrounding identified tax issues can be an obstacle to strategic planning and getting a deal across the line. Tax insurance can help:
- where a transaction fails to qualify for its intended tax treatment;
- cover losses including taxes payable, interest and penalties, and gross-up amounts for tax due on insurance proceeds;
- contest costs tied to the defence of the position;
- overcome difficult negotiations when acquiring targets with a large tax exposure;
- benefit a seller looking to cover indemnity obligations for pre-close tax exposures; and
- allow a buyer to insure itself against a heightened tax issue rather than seek a special indemnity that can hinder the deal.
In addition to M&A transactions, tax insurance can also be strategically used as a risk management tool for contingent tax risks related to:
- Corporate reorganisations (tax-free and taxable)
- Intra-group fund flows (dividends, interest, royalties and services fees)
- Intra-group transactions and investments
- Net Operating Losses
- REITs/real estate acquisition/sales
- Tax residency status
- Employee benefits
- Indirect taxes (VAT/GST)
Benefits of Tax Insurance
As a dominant global tax insurance broker, our team of tax professionals across geographies can help you achieve confidence about the tax treatment of your deal or items uncovered through diligence.