Tax Opinion Insurance
The use of sophisticated tax planning can offer significant financial rewards to businesses. However, the implementation of such tax strategies is not without risk, even when expert advice is sought. In addition, the existence of such schemes can cause issues in the future, for example, when a business prepares for an acquisition, disposal or merger. Tax opinion insurance can often be arranged to provide protection against the crystallisation of a tax charge brought about by a challenge from the relevant tax authority. Furthermore, the policy also covers the related costs and expenses of defending such claim which can be of particular value with such costs being recoverable even if the challenge is unsuccessful or abandoned.
Typical areas of concern include:
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onshore/offshore domicility concerns
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SDLT/capital gains issues
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Substantial Shareholder exemption issues
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pre sale re-organisation
Contingent tax insurance is typically arranged with a policy period to match the limitation period for challenge, and attracts a one-off premium payable at inception of the policy. The absence of an annual policy renewal gives certainty as to premium cost and added comfort in relation to changes in the law during the policy period (which might affect an insurer’s willingness to offer a renewal). The insured might be the party with the primary liability to the relevant tax exposure (e.g. the target), or the party that is giving an indemnity in relation to the particular tax scheme (e.g. the sellers).
If you have concerns which arise out of a tax structure or have concerns over a contingent tax exposure please contact HSBC Insurance Brokers M&A Risk Advisory Team (see contacts box above)
