Tax Insurance – Manage your Tax Risks and Unlock Cash in M&A Transactions

Across Asia, tax laws are getting increasingly complex and open to interpretation. Hence, there is heightened uncertainty as to whether a particular tax position may be challenged by the authorities. While taxpayers may prefer to adopt certain positions and interpretations to their advantage (especially when the tax laws are not clear), the additional tax exposure (including penalties and interest) may be significant.

To manage this, tax insurance can be used to transfer relevant risks to insurers and obviate the need for any remedial actions, providing valuable certainty to the taxpayer.

Tax insurance can cover specific tax positions a taxpayer has taken historically, as part of the company’s ongoing operations, or to cover tax risks associated with a group restructuring.

Tax insurance can also be employed to transfer tax risk arising from or identified in the course of Merger and Acquisitions (M&A) transactions. Such policies are used by sellers to back an indemnity or taken up by buyers when their sellers are unwilling to stand behind the potential liability on specific tax issues. This is an alternative to requiring an escrow mechanism or purchase price adjustments. In addition, tax insurance may avoid the need to obtain any advance ruling from the tax authorities, which may not be feasible due to time constraints in M&A transactions.

Find out more in the attached document which provides more information on tax insurance.