Providing certainty where uncertainty exists, tax opinion liability insurance protects companies from the financial impact of a challenge by tax authorities following an acquisition or divestment.
New Zealand market conditions are currently “ripe” for people looking to sell their business, with indicators including predicted earnings and corporate appetite for deals on a continued positive trend1. With lower regulatory hurdles than other countries, and a stable political and legal environment, New Zealand is also an attractive environment for offshore investors. These factors support the current buoyant M&A activity2 in New Zealand.
As in all markets, however, there are a number of risk factors that can hinder the successful implementation of a merger, acquisition or restructure, including uncertainty in the application of corporate tax legislation or administrative rulings which can leave a company vulnerable to future challenges by tax authorities and exposed to a potentially substantial tax liability.
Tax liability insurance from AIG helps businesses to reduce or eliminate any contingent tax exposure arising from the tax treatment of a transaction, investment or other activity where the underlying legal conclusions that support that tax treatment may be challenged by the relevant tax authorities at a future date.
1 KPMG New Zealand M&A Predictor, September 2014
Our bespoke policies provide coverage for the primary tax payable (after deducting any off-setting benefits), as well as a “gross-up” of taxes payable with respect to the proceeds of the Tax Liability Insurance and any interest and non-criminal fines or penalties in the event of a non-favourable determination by the tax authority. The policy can also provide coverage for defence costs, such as legal or tax adviser expenses.
The term of a Tax Opinion Liability Insurance policy can be up to seven years from the date the policy is incepted.
Our policies cover tax issues relating to the legal interpretation of tax legislation, administrative rulings or case law as applied to the facts presented by a taxpayer.
Tax liability insurance may be an effective tool for: