Tax Liability Insurance
- Underwriters: we have both legal and accounting expertise
- Jurisdictions: no restrictions other than the United States (we are supported internationally by a network of top-tier legal advisers)
- Taxes: no restrictions
- Duration: up to a maximum of 7 years
Limit of Liability: up to £46m (or local equivalent)
- Insureds: able to cover both individuals and corporates
- Advance tax payment / guarantee: available for an additional premium on a case-by-case basis
Brexit: contingency plans are already in place to enable us to continue to service EEA customers seamlessly even in the event that the UK exits from the EU without a deal
- Transfer Pricing: we are able to offer protection against loss suffered where the arm’s length pricing of a transaction that is supported by a benchmarking study is challenged by a tax authority (see our brochure)
What is tax liability insurance?
Tax liability insurance offers cover for an identified tax event allowing a taxpayer to reduce or eliminate a tax exposure.
The purpose of tax liability insurance is to protect against differing interpretations of tax law. It is a tool that provides tax treatment certainty in order to facilitate activities by both corporates and individuals or alternatively to assist boards, investment committees, asset managers, finance providers, etc with managing risk.
Tax liability insurance can offer a solution in a multitude of scenarios (e.g. reorganisations, asset purchases, liquidations or mitigation of historic risks).
Covered losses can include the tax suffered, defence costs, interest, penalties and grossing-up to take account of tax borne on the insurance proceeds.
When can tax liability insurance help?
Ultimately, tax liability insurance offers a new way to manage risk, offer the certainty required to allow a transaction to progress or, importantly, save time.
In particular, tax liability insurance can be used to:
give peace of mind in relation to a historic tax position;
- remove the need for an escrow or reserve;
- stand behind or replace an indemnity;
- prevent price negotiations or delays by mitigating identified risks;
allow investment funds to be liquidated and proceeds returned to investors;
provide a liquidator with the comfort required to release proceeds;
- remove uncertainty from a restructuring or reorganisation;
- mitigate a risk to allow for favourable financing terms;
- provide a greater limit of liability than a counterparty is willing or able to offer (e.g. the insurance sits in excess);
- secure catastrophe cover (e.g. where a tax liability, no matter how remote, is unconscionable);
increase covenant strength and manage recoverability risk (Lloyd’s syndicates are all rated A by AM Best or A+ by Standard and Poor’s and Fitch);
reduce uncertain accounting tax positions or tax expenses; or
provide a quicker and confidential alternative to a tax authority clearance (or provide the comfort of a clearance if this is not available).
What can be covered by tax liability insurance?
Among other factors, insurability depends on:
- the likelihood of a challenge by a tax authority (the risk should be considered low);
- the defensibility of the position taken (there should be defences available and the appropriate documentation/evidence should be available);
the fact pattern relating to the risk (we will rely on the facts as represented to us);
- the situs of the risk (the relevant jurisdiction should have a stable court system with a concept of legal certainty);
- the quantum of the liability; and
- the motivation for insurance.
Although we will not offer protection against any divergence from the facts presented to the us, it is possible to insure whether a legal test is met on the facts as represented.
Tax liability insurance is not available for intentional tax avoidance/evasion or marketed schemes.
A pdf copy of our tax brochure is available here.
Frequently Asked Questions
What taxes can be insured by tax liability insurance?
Any tax can be insured in respect of both individual and corporate taxpayers. Brockwell is able to offer tax liability insurance in any jurisdiction other than the United States.
What should a request for indicative tax liability insurance terms include?
When seeking tax liability insurance the following information should be provided: (i) an outline/description of the tax risk, (ii) details and analysis of any facts relevant to the risk (both positive and negative), (iii) a calculation of the limit of insurance required, (iv) details of what insurance is required (e.g. who is the insured, policy period, limit of liability, etc), and (v) copies of any tax advice in relation to the risk.
Is tax liability insurance available where there isn’t an M&A transaction?
Yes, tax liability insurance can be used in the context of a transaction (e.g. M&A or a reorganisation) or as part of ongoing risk management (e.g. to prevent an accounting provision for a sizeable, low risk or as a quicker alternative to a clearance).
What is covered by a tax liability insurance policy?
Covered loss can include any tax suffered, interest, penalties, costs of defending an assessment and gross-up for tax on insurance proceeds.
How long does it take for Brockwell to provide indicative terms for tax liability insurance?
We can provide a quote for insurance within 48 hours depending on the complexity of the risk.
How long does it take to obtain a finalised tax liability insurance policy?
It will depend on the complexity of the risk and the amount of readily-available information, but it is possible to complete underwriting five business days following the receipt of responses to Q&A and all requested documentation.
Will Brockwell offer tax liability insurance for transactions which are reportable to a tax authority?
We do not offer insurance for transactions/arrangements that are reportable under the UK’s disclosure of tax avoidance schemes (DOTAS) regime or its equivalents in other jurisdictions. We will consider transactions/arrangements which are reportable pursuant to domestic legislation (e.g. as implemented following the EU Council Directive 2011/16 (DAC6)) provided that the relevant transaction/arrangement (i) does not constitute aggressive tax avoidance, (ii) has a commercial purpose, and (iii) is in the spirit of the relevant law (i.e. is not exploiting an unintended legal loophole).
Do Brockwell offer cover for schemes/arrangement designed to exploit unintended legal loopholes?
No. We would not offer cover for such a scheme/arrangement.
- When is the premium paid?
We charge a single, up-front premium.
- Can you provide cover in the USA?
We do not currently offer insurance either to US insureds or in respect of purely US transactions.