Tax Opinion Liability Insurance

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

² Ibid.

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:

• Successor liability issues in the context of M&A transactions where an acquirer is concerned about an historic tax position taken by the target company or its consolidated tax group.
• Protection of a group's tax position following re-organisations (for example intra-group asset transfers, hive down, demerger or disposal).
• Tax consequences resulting from a change of ownership.
• Situations where parties do not wish or are unable to obtain timely clearances from tax authorities.

• Bespoke products, based on over 40 years’ experience working with New Zealand businesses, and over 95 years serving customers around the world. 
• Local expertise backed by a worldwide network of highly-skilled insurance professionals, helping to make complex deals a reality.
• Financial strength and stability – large capacities available, reducing the need for multiple insurers.
• Access to our highly-skilled and specialised team of claims professionals who will process your claim efficiently and professionally.