Every VP of Tax knows the feeling: the company has a strong tax position, it’s the right decision for the company and its shareholders, and the CFO and financial auditors agree. Still, uncertainty lingers—
The regulations aren’t 100% clear on the issue.
The position has not been tested in any IRS rulings or case law.
While an unfavorable audit result is unlikely, if it happened, it would have a material adverse impact on the company.
Tax insurance delivers confidence
How does a corporate tax leader move forward with confidence? Obtaining a ruling from tax authorities could take a year or more, well after the position is recorded in financial statements. A financial statement reserve would impact EPS and result in ongoing effective tax rate “noise,” including quarterly reviews of the technical position as well as interest accruals.
This is where tax insurance proves its value, by safeguarding sound decisions by corporate tax leaders.
Tax insurance gives VPs of Tax and CFOs the ability to make decisions and move forward with certainty. It transfers specific risks to investment-grade insurers, mitigating the impact of tax ambiguity on financial statements.
What tax insurance covers
Policies can cover any “more likely than not” position, including:
Internal reorganizations, spinoffs and contribution transactions
Worthless stock deductions and debt write-offs
Debt/equity issues and interest deductibility
Transfer pricing issues
R&D credit positions
Controlled foreign corporation transactions, and GILTI, FDII and BEAT issues
Pillar Two positions
State income, sales, use and property tax positions
Policies are customized to each potential exposure and typically cover any underpaid tax, interest, penalties, contest costs, and a gross-up for any taxable policy proceeds. Premiums are a one-time, upfront payment, and priced at a small percentage (typically, 2% – 5%) of the total potential exposure.
Why tax insurance matters now more than ever
Tax leaders are experienced in navigating ambiguity, because tax rules are inherently complex. With the current pace of business and regulatory changes, however, this complexity continues to multiply. Each new tax change requires deep analysis and detailed modelling of the new law’s impact on the company, its interaction with existing domestic rules and, increasingly, its coordination with global minimum tax rules.
In addition, tax leaders of high-growth businesses or companies facing fundamental industry changes must take positions on how tax rules apply to new fact patterns and in new jurisdictions. And when a company is facing both – law changes plus business operational changes – the tax complexity can grow exponentially.
Tax insurance helps every corporate stakeholder turn that ambiguity into certainty:
For corporate tax leaders
: it provides confidence to move forward with tax decisions and planning initiatives.
For CFOs
: it protects the company’s balance sheet and minimizes unpredictable swings in the effective tax rate.
Make tax decisions with confidence
For corporate tax leaders, tax insurance can be a valuable tool for backstopping decisions and securing buy-in from the CFO and financial auditors. It gives every corporate stakeholder what they need most: certainty, efficiency, and the confidence to keep transactions and tax planning initiatives moving forward.
