Navigating the intricate world of taxation can be a challenging task for companies across all lines of business. Tax laws are always evolving, and even the most meticulous due diligence cannot always account for tax risks. Tax liability insurance is a valuable financial tool designed to mitigate and manage potential loss due to challenges from domestic or foreign tax authorities.
Leveraging Tax Liability insurance
Tax insurance is an effective risk management tool to shift tax-related risks from the taxpayer to the insurer. The insurance can be used to mitigate or eliminate tax risk exposures tied to a range of corporate activities, such as day-to-day operations, restructuring, capital movements, and merger and acquisition outcomes.
Uses of tax liability insurance include:
- Stakeholder capital gains risk
- Taxable Canadian property classification and withholding
- Application of resource pools
- Application of a non-capital loss (NCL) post-transaction
- General anti-avoidance rule (GAAR)
- Classification of capital vs. inventory
- Transfer pricing disputes
- International tax risks
Tax Liability coverage at a glance
Tax liability policies are tailored to address your unique tax risk exposures. These policies are typically structured in the following way:
| Coverage | Tax liability insurance insures against potential tax issues. |
| Capacity | Up to CAD$1.5 billion. |
| Pricing | 2.5% to 9.5% of the amount of tax coverage purchased. |
| Policy period | Typically up to 7 years, though it can be extended to a 10-year period for tax risks requiring longer coverage periods. |
| Retention (deductible) | Often limited to contest costs. |
Working with our highly experienced professionals to secure suitable tax liability insurance, our clients can confidently navigate a complex tax landscape, shield themselves from financial repercussions, and ensure the continued success of their operations. Whether in day-to-day activities or significant corporate transactions, tax liability insurance offers a safety net that every forward-thinking business should consider.
