In complex transactions, restructurings, or sensitive situations, known tax risks can have significant legal and financial consequences if the tax outcome remains uncertain.
One effective tool for mitigating such risks is tax insurance.
What it takes — in brief:
1) Thorough risk analysis
The starting point is a precise tax assessment based on a complete and accurate set of facts, typically documented in a tax memorandum.
2) Preparation of submission
A broker coordinates the preparation of the relevant documentation, structures the process, and approaches suitable tax insurers in a targeted manner.
3) Insurer’s initial assessment
Relying on external tax advisers they trust, insurers promptly obtain an initial assessment as to whether the risk appears insurable in principle.
4) Indication / offer and underwriting fees
If the risk appears insurable, a non-binding indication or an offer may be issued. Upon acceptance, underwriting fees are agreed, covering the insurer’s advisers’ in-depth tax and legal review.
5) Detailed review (underwriting)
During the detailed review, follow-up questions and additional documentation are to be expected, while the tax memorandum — including the facts and risk assessment — is critically examined.
6) Policy issuance
If, after completion of the review, the risk remains within the insurer’s risk tolerance, the insurance policy is issued.
Key takeaway:
Tax insurance can be an effective instrument for risk mitigation. It works best when the underlying tax risk is clearly defined and thoroughly analysed.
Tax insurance does not replace sound tax structuring — it complements it.