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Tax liability insurance

All M&A transactions require careful due diligence by both sides.

Sometimes tax liabilities are uncovered during this long and arduous process where the accountability is obvious. Other times, the lines may be a bit more blurred as to who bears the responsibility. And then there are times, months or even years down the line, when unexpected back taxes—as well as the corresponding interest, fees and penalties—give new owners more than they bargained for. All of this uncertainty can add to an already taxing situation.

GTS Tax Liability Insurance shifts the responsibility for tax contingencies from the insured to the insurer—minimizing financial risk and exposures and reducing the friction between buyers and sellers. So both parties can move forward quickly and confidently—and the only thing taken off of the table is the uncertainty.

A protective partnership

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.

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Liberty Mutual Canada™ is the registered business name under which the Canadian branch of the Liberty Mutual Insurance Company operates in Canada. This literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. Please refer to the actual policy language for complete details of coverage and exclusions.