Tax Liability Insurance
Tax Liability Insurance shifts the responsibility for tax contingencies which are known or identified in diligence from the insured to the insurer—managing financial risk and exposures and reducing the friction between buyers and sellers in a Mergers and Acquisitions (M&A) transaction. So both parties can move forward quickly and confidently—and the only thing taken off of the table is the uncertainty.
Tax Liability Insurance for Sellers
When it comes to M&A transactions, it’s not uncommon for post-closing rulings and challenges by tax authorities to prevent the distribution of proceeds while teams of lawyers and accountants determine liabilities and their financial impacts. For this reason, many sellers set aside a portion of these funds in escrow accounts, making them untouchable for up to seven years—and preventing them from being distributed to investors or reinvested in other opportunities. Tax Liability Insurance aims to give sellers the peace of mind in knowing exactly what they’re liable for—a single, calculated insurance premium. If there are multiple sellers, this insurance can also help to limit each of the seller’s exposure to one another.
Tax Liability Insurance for Buyers
M&A deals are a huge investment for buyers—in time, as well as money. So when they are suddenly hit with unknown tax liabilities—whether it is pre- or post-closing, it can turn what was seemingly a very lucrative deal into a financial disaster. Tax Liability Insurance can reassure buyers and lenders that outstanding liabilities may be covered