Tax insurance: a transaction's tax risk, off your balance sheet
When a transaction rests on a reasonable but debatable tax interpretation, this insurance transfers to an insurer the risk that the tax authorities take a different view. It is also what gives investors peace of mind in tax-incentivised structures such as tax lease.
Certainty over a specific tax position
Tax insurance (tax insurance) covers a company's losses if the tax authorities challenge a specific tax position previously identified and analysed by its advisers.
It is designed for situations where there is a reasonable, well-documented interpretation but not absolute certainty: a restructuring under a special regime, an incentive-based tax credit, the tax treatment of an acquisition or an investment in a tax-advantaged structure.
If the tax authorities reassess that position on the insured grounds, the policy pays the tax claimed, late-payment interest and defence costs, within the agreed limits. The risk comes off the balance sheet and the transaction can go ahead.
In a nutshell
You and your advisers believe the tax position is correct. So does the insurer, after studying it. If the tax authorities still challenge it and win, the policy pays.
Transactions where a tax doubt can stall the decision
Company acquisitions
Tax risks found in due diligence that M&A insurance excludes and that, without cover, would block the price negotiation.
Restructurings
Mergers, demergers or contributions under the tax-neutrality regime, where the valid business purpose is in question.
Incentives and tax credits
R&D&I credits, credits for investment in audiovisual productions and other incentives subject to requirements the tax authorities can verify.
Tax lease
Investments through economic interest groupings whose return depends on the tax benefit being upheld.
Real estate transactions
Transfers of assets and portfolios where the applicable tax treatment is open to more than one interpretation.
International tax
Permanent establishment, withholding tax or transfer pricing risks in groups operating in several countries.
Tax lease: investing with a tax incentive and with the risk insured
In Spain, tax lease refers to structures in which investing companies take part, through an economic interest grouping (AIE), in financing assets or projects that the law incentivises through tax, such as shipbuilding or audiovisual production.
- The investment. The investing company becomes a member of an AIE that finances the project.
- The return. The AIE passes the project's tax benefits on to its members, reducing their corporate income tax. That saving is the return on the investment.
- The risk. If, in a later audit, the tax authorities challenge the incentive requirements, the investor may have to repay what was deducted, with late-payment interest.
- The insurance. A tax insurance policy covers that reassessment on the insured grounds, so the investor is protected against that loss.
Who it is for
Companies with a significant corporate income tax bill looking for a short-term investment linked to their own tax position, backed by legal analysis and insurance cover.
We support you through the tax lease from start to finish
At Grupo Trebia we support investors throughout the process: the legal analysis of the transaction with the support of Trebia Abogados and the tax risk cover with Trebia Seguros, which places the policy in the Spanish and international markets, including Lloyd’s.
What the policy pays if the tax authorities reassess
Covered
The reassessed tax, late-payment interest, defence costs in the proceedings and, depending on the policy, the tax arising on the indemnity itself (gross-up). Penalties only where the law allows them to be insured.
Not covered
Risks already known with a claim under way, changes in the law after inception, facts not disclosed to the insurer and wilful or fraudulent conduct.
Insurance tailored to each tax position
It is not an off-the-shelf product: each policy is designed around a specific risk. We present it to specialist Spanish and international insurers and to Lloyd’s, and compare their terms.
- Analysis. We review the transaction and your tax advisers' opinion on the position to be insured.
- Market. We present the risk to specialist insurers and obtain indicative proposals.
- Underwriting. The chosen insurer studies the documentation in detail and sets the final terms.
- Policy. A single premium and cover for the period in which the tax authorities can review the transaction.
What clients usually ask us
Which tax risks can be insured?
Specific, identified tax positions backed by sound technical analysis. Generic risks and issues already under audit cannot be insured.
Do I need a report from a tax adviser?
Usually yes. The insurer assesses the risk based on your advisers' analysis; the stronger it is, the better the terms.
How long does cover last?
It usually covers the period in which the tax authorities can review the transaction, which may be extended if an audit begins. It is set in each policy.
Does it cover penalties?
Only where the law allows them to be insured, which is not usual. Tax, late-payment interest and defence are the core of the cover.
Does the insurance guarantee the return on a tax lease?
It does not guarantee the return, which depends on the project and the structure. What it covers is the loss resulting from the tax authorities reassessing the tax benefit on the insured grounds.
How much does it cost?
It is a single premium that depends on the amount insured, the complexity of the risk and the strength of the technical analysis. We present comparative proposals from the market.
Tell us about your transaction or your interest in tax lease
One of our specialists will contact you to learn about the transaction or tell you about upcoming tax lease opportunities. All information is treated in confidence.
- Comparison across more than 40 insurers
- A review of your current policy, if you have one
- A single point of contact who also supports you with claims
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