Tax Liability Insurance
Tax Liability Insurance is a key strategic tool in the management of the uncertainties arising from potential liabilities that may have been identified in tax structures, both past and present. The product can be used to ring fence single issues or multiple issues. There are many occasions where the tax due diligence, having been conducted, highlights uncertainties surrounding the tax law or treatment relating to a transaction, which becomes the reason for a deal to falter. The seller, not willing to provide any indemnity to the buyer for any unfavorable tax treatment and outcome, forces the buyer, if wishing to close the deal, to assume those liabilities, with the consequential ramifications. However, the Tax Liability policy provides a solution by insuring that tax liability for the buyer, enabling closure without them having to assuming the tax risk.
Scope of the coverage.
The purpose of the policy is to match the identified tax issues within the transaction. By the insurer assume that tax liability, the issue is removed and the deal can close. The available cover is extensive, encompassing the insured tax liability if crystallized, interest and defense costs if also incurred. Additionally, significant limits and time periods covering the applicable limitation period for the relevant jurisdiction, are available.
When should you consider purchasing?
As the policy can provide significant enhancement to a deal, early engagement is, therefore, recommended. It then allows adequate time to structure the policy to maximize its ability to enhance the deal value. In other circumstances, it may only be when a deal blocker arises, that the policy is considered. Equally, a policy can be placed post completion. The norm, however, is to engage at the early stages of a transaction, when the sale agreement is being negotiated.