Insuring tax risk in transactions
Produced in partnership with Mary Duffy of AIG

The following Tax practice note produced in partnership with Mary Duffy of AIG provides comprehensive and up to date legal information covering:

  • Insuring tax risk in transactions
  • Tax insurance defined
  • Tax insurance versus W&I insurance
  • What types of tax risks are insured?
  • Tax insurance covers questions of law, not fact
  • Jurisdictions
  • What tax risks can be insured?
  • What tax risks can’t be insured?
  • The underwriting process
  • Coverage amounts and premiums
  • More...

Insuring tax risk in transactions

Deal makers may look to insurance to manage a variety of risks inherent in transactions. In many situations, tax risk can be managed or eliminated in a transaction through a tax insurance policy. As with the use of warranty and indemnity (W&I) insurance in mergers and acquisitions (M&A) deals (see Practice Note: Warranty and indemnity insurance in M&A transactions), the use of tax insurance is becoming an increasingly common strategy to address contingent tax risks.

This Practice Note looks at the situations in which tax insurance may be used, the risks that may be covered, the steps involved in a typical underwriting process and the key terms of a tax insurance policy.

For information on the practical issues that a tax lawyer should consider when advising on an M&A transaction, structured as a share sale, where one of the parties will be taking out either W&I insurance, or tax risk insurance, see Practice Note: Insured M&A transactions—a tax lawyer's guide.

Tax insurance defined

A tax insurance policy is designed to indemnify a taxpayer against a contingent tax exposure arising from a transaction, investment or other activity in the event that the filing position is challenged by the relevant tax authority. While tax insurance can be used in a wide variety of situations, it is often used in connection with an M&A or other transaction

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