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Tax Liability

Tax liability insurance is a bespoke insurance policy which effectively ring-fences the tax issue and removes it from the sale agreement negotiation.

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An identified tax issue can often lead to an aborted M&A process with sellers and buyers often disagreeing on the gravity and quantum of the issue. Tax liability insurance is a bespoke insurance policy which effectively ring-fences the tax issue and removes it from the sale agreement negotiation. This means that the seller does not have to give a warranty or a specific indemnity on the tax issue and conversely it can prevent the buyer using the tax issue as a reason to “price-chip”.

Why Purchase Tax Insurance?

Tax insurance, also known as tax indemnity insurance or tax opinion insurance, is most often used:

  • To provide protection if a taxing authority challenges a historical tax position taken by a target entity that is either assumed by the buyer or retained by the seller via an indemnity.
  • To ensure that a particular tax structure used in a transaction has its intended effect.
  • To provide protection when there is no clear guidance on a specific tax issue, and a party is unwilling to accept the tax exposure.

In addition to its use in M&A transactions, tax insurance can be obtained on many tax positions a company has taken historically, or is planning to execute, in case they are reviewed by tax authorities as part of the company’s ongoing operations.

A tax insurance policy generally covers the tax liability for seven years, along with any possible fines and penalties, interest, legal contest costs, and tax gross-up. All forms of direct and indirect taxation can be covered, including:

  • Corporate income tax.
  • Personal income tax.
  • Capital gains tax.
  • Property tax.
  • Sales and use/value added tax.

For more information on tax insurance, download PDF below or contact your Marsh representative.

BROCHURE

Tax Insurance: A Comprehensive and Cost-Effective Risk Management Solution

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“Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions. This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from JLT Risk Solutions on request. Full information can be found in the JLT Risk Solutions Financial Services Guide.”