
Mark McTigue
Co-Head Tax Insurance, North America
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United States
In M&A transactions, the identification of a tax issue can often lead to complications and disagreements between sellers and buyers, depending on the severity and magnitude of the issue. By utilising tax liability insurance, parties involved in an M&A transaction can seek to isolate the tax issue and transfer the associated risk to an insurance provider. This not only removes the obstacle to executing the transaction but also eliminates the need for the seller to provide a warranty or specific indemnity related to the tax issue. Likewise, it prevents the buyer from using the tax issue as a bargaining chip in price negotiations.
Beyond M&A transactions, tax insurance has broad applicability in various situations. It can provide certainty regarding a tax position in scenarios such as restructuring, insolvent sales, and the release of balance sheet provisions.
In addition to its use in M&A transactions, tax insurance can be obtained on many tax positions as part of a company’s ongoing operations. This coverage protects against potential tax authority reviews.
A tax insurance policy typically provides coverage for a period of seven years. It includes protection against tax liabilities, fines and penalties, interest, legal contest costs, and tax gross-up. The policy can cover various forms of direct and indirect taxation, such as:
Tax insurance can provide coverage for financial losses related to known tax risks that may be contested after the transaction is closed. It offers benefits to both the buyer (such as supplementing R&W/W&I insurance and providing recourse when no seller indemnity protects key relationships/employees, etc.) and the seller (such as reducing escrows or contingencies and maximising indemnification).
Tax insurance can provide coverage for financial losses resulting from tax risks throughout the corporate lifecycle, including M&A activity and return insurance. It can help mitigate risks in situations where adverse decisions can have catastrophic consequences, such as tax restructuring, refinancing, and internal tax planning.
Tax insurance can provide coverage for financial losses resulting from successful challenges by tax authorities to investment and production tax credits in renewable energy (for example, wind, solar, and carbon sequestration) and other related requirements (for example, prevailing wage and apprenticeship, energy community, and domestic content). It offers benefits, such as transferring risks to third parties, allowing for more business growth and providing credit support/enhancement for financing and securitisations.
Tax insurance can provide coverage for financial losses resulting from tax risks in the context of family office asset management. It is generally driven by tax planning and offers protection from risks or historical exposures. It can also address issues impacting risk flow to new versus former limited partners (LPs).
Tax insurance in this context is similar to certain aspects of family office asset management, providing protection for new risks or historical exposures driven by tax planning at any time. It can be particularly valuable in scenarios where there is a large potential downside if the IRS or other taxing authority were to challenge a tax position. Tax insurance may be utilised to address the following scenarios:
Tax insurance policies are most effective for addressing uncertainty in legal outcomes concerning a discrete tax issue. They are not meant to cover all potential tax consequences or unknown risks associated with estate planning.
Co-Head Tax Insurance, North America
United States
Co-Head Tax Insurance, North America
United States
Head of Tax Insurance, UK
United Kingdom
Head of Tax Risk, Asia
Singapore
Head of Tax Insurance, Europe
Germany