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”.
Tax insurance, also known as tax indemnity insurance or tax opinion insurance, is most often used:
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:
For more information on tax insurance, download PDF below or contact your Marsh representative.