A look at tax liability insurance (With Giles Hambly)

In a special cross-over episode with our sister podcast Taxing Matters, this episode looks at the tax liability insurance. Peter is joined by Alice Kemp, host of Taxing Matters and Giles Hambly, Tax and M&A insurance specialist broker at Gallagher. We discuss what tax liability insurance is, how it works in practice and why many businesses are now choosing to take it out.

We start by discussing what tax liability insurance is, Giles explains it is a form of cover taken by a business to protect them if the tax authority challenges a transaction. What that means is if you undertake a transaction or you sell a product in a certain way, you need to meet certain thresholds to qualify for an exemption, such as capital gains exemption, corporate tax exemptions or VAT exemptions. Those rules are highly complex, and, in many cases, there are uncertainties about how it applies to your fact pattern. And so typically what you would do is you would go and get advice from a tax advisor, on whether you meet the thresholds for an exemption and they will judge whether they believe you are able to qualify for it. However even with expert advice there's still a risk that the tax authorities would disagree with the position taken and dispute it. So, a tax liability policy would cover the individual or business in that scenario.   

We then look at some of the practicalities of tax liability insurance, working through an example of the risks and exposures this kind of policy would cover in an M&A scenario. We also discuss the structure of the tax liability insurance market and how they need to consider the different jurisdictions involved when underwriting the policy. 

Finally, we explore if there are any ethical issues that could come into play in this kind of policy. Giles explains that there are not these kind of issues. These policies are designed to protect against uncertainties in the rules and that if you were trying to achieve a tax advantage, it would be very challenging to get that position insured.

We hope you enjoyed this special crossover episode of Insurance Covered, many thanks to Alice and Giles for joining us. If you did enjoy, please subscribe to be notified when new episodes are released.

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