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FAQ's
Tax insurance is a specific insurance product, primarily used to cover tax risks identified in M&A transactions, where neither the seller nor the buyer is willing, or able, to retain the risk . A specific tax insurance policy is then taken out to avoid the need for a seller to place funds in escrow.
Tax liability insurance seeks to reduce or eliminate the exposure of an identified tax risk, from a successful challenge to the expected tax treatment of a proposed or historic transaction by the local or foreign tax authority, by transferring the tax risk from the taxpayer to an insurer
What are the benefits in an M&A context? Like all types of insurance, the main benefit of tax insurance is that it functions as a risk transfer mechanism under which identified (tax) risks are transferred from a taxpayer to an insurer in a cost-effective manner. This provides certainty to the parties involved and eliminates financial contingencies. In M&A transactions, uncertainty surrounding identified tax issues can be an obstacle to strategic planning and getting a deal across the line. Tax Insurance can remove a specific tax concern from a transaction that might otherwise be a dealbreaker. Let’s look at an example to make this clearer:
An insurance claim is a formal request to your insurance provider for reimbursement against losses covered under your insurance policy.
Insurance is a financial agreement between you and your insurer. You have to pay a fixed premium. And in exchange, the insurance provider offers financial cover for losses based on the policy terms.
When the event covered under your policy occurs, a claim must be filed. The purpose is to notify the insurer that the event for which you have opted for an insurance has occurred and the insurer should pay the claim amount
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Tax insurance, also known as tax indemnity insurance or tax
opinion insurance, is most often used:
• To provide protection if a taxing authority challenges
a historical tax position taken by a target entity that
is either assumed by the buyer or retained by the seller
via an indemnity
To ensure that a particular tax structure used in a transaction
has its intended effect.
• To provide protection when there is no clear guidance
on a specific tax issue, and a party is unwilling to accept
the tax exposure.
In addition to its use in M&A transactions, tax insurance can be
obtained on many tax positions a company has taken historically,
or is planning to execute, in case they are reviewed by tax
authorities as part of the company’s ongoing operations.
A tax insurance policy generally covers the tax liability for seven
years, along with any possible fines and penalties, interest, legal
contest costs, and tax gross-up. All forms of direct and indirect
taxation can be covered, including
A tax insurance policy generally covers the tax liability for seven years , along with any possible fines and penalties, interest, legal contest costs, and tax gross-up. All forms of direct and indirect taxation can be covered, including: Corporate income tax
Although the premium for a policy depends on the specifics of the particular tax risk, the rate for insurable positions in our experience is typically between 2.5% and 5% of the limit of liability purchased. Premium cost can be affected by several factors, including: • The jurisdiction(s) of the tax risk. • The insurance limits purchased relative to the magnitude of the risk. • The amount of risk retained by the insured. • The degree to which the potential tax loss is “all or nothing.” • The strength of the tax opinion, if issued. • The breadth of available legal precedent related to the specific tax issue. Insurers can generally offer up to seven years of coverage for tax insurance policies, although extensions may be possible. For any given insurable risk, there is generally more than $1 billion of available capacity, with the market expected to grow as more insurers enter the sector.
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Have Questions? WHAT IS MARINE INSURANCE
Refundable insurance for shipping a product from abroad is a legitimate option offered by many shipping companies and carriers. This type of insurance is designed to protect the sender against loss or damage of the package during transit. If the item is lost or damaged, the sender can file a claim and receive a refund or replacement for the insured value. Here are a few key points to consider: Legitimacy: Refundable insurance is a standard practice in the shipping industry and is not considered cheating. It provides peace of mind for both senders and recipients. Terms and Conditions: Each shipping provider will have specific terms and conditions regarding their insurance policies. It's important to read these carefully to understand what is covered, the claim process, and any exclusions. Cost: Shipping insurance typically comes at an additional cost, which is usually a percentage of the declared value of the item being shipped. Claim Process: If a claim needs to be filed, it generally involves providing proof of value and evidence of loss or damage. The process can vary depending on the carrier. In summary, refundable insurance for shipping is a common and legitimate service that helps protect against potential losses during international shipping.
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