Defending your company's transfer pricing (TP) position with the tax authorities can be a daunting task. Uncertainties in benchmarking methodologies, a lack of comparables in certain cases, and a somewhat subjective nature of arm’s length pricing determinations have previously deterred tax risk insurers from underwriting TP risks. This has changed in the last couple of years.
Many insurers are now more comfortable with TP risks, are supported by TP specialists, and have insured a number of TP risks (with a focus on financial instrument TP). Many other insurers are starting to venture into the TP insurance market. This development enables corporates to consider a new approach to their TP risks.
In this article we explain the approaches adopted by the insurance market to underwrite TP risks, the advantages of TP insurance, and the types of TP risks which are insurable.