Tax Liability Insurance
Providing certainty where uncertainty exists, Tax Opinion Liability Insurance protects companies from the financial impact of a challenge by tax authorities following an acquisition or divestment.
Australia has strong market conditions for people looking to sell their business. With lower regulatory hurdles than some other countries and a stable political and legal environment, Australia can also be an attractive environment for offshore investors. These factors support the current buoyant M&A activity in Australia.
As in all markets, however, there are a number of risk factors that can hinder the successful implementation of a merger, acquisition or restructure. These may include uncertainty in the application of corporate tax legislation or administrative rulings, which can leave a company vulnerable to future challenges by tax authorities, and exposed to a potentially substantial tax liability.
Tax Liability Insurance from AIG helps businesses to reduce or eliminate any contingent exposure arising from the tax treatment of a transaction, investment or other activity that is later challenged by tax authorities.
AIG's bespoke policies provide coverage for the primary tax payable (after deducting any offset benefits), as well as a 'gross-up' of taxes payable due to the proceeds of the Tax Liability Insurance. They also cover any interest and non-criminal fines or penalties in the event of a non-favourable determination by the tax authority. Coverage for defence costs, such as legal or tax adviser expenses is also available.
The term of a Tax Opinion Liability Insurance policy can be up to seven years from the date of inception.
Our policies cover tax issues relating to the legal interpretation of tax legislation, administrative rulings or case law, as applied to the facts presented by a taxpayer.
Tax Liability Insurance may be an effective tool for:
- Successor liability issues in the context of M&A transactions where an acquirer is concerned about an historic tax position taken by the target company or its consolidated tax group.
- Protection of a group's tax position following re-organisations (for example intra-group asset transfers, hive down, demerger or disposal).
- Tax consequences resulting from a change of ownership.
- Situations where parties do not wish or are unable to obtain timely clearances from tax authorities.