Insurance in tax-critical transactions

A report on a session at the IBA’s 15th Annual London Finance and Capital Markets Conference held on 26 and 27 January 2026

Chair

Andrew Quinn, Maples Group, Dublin

Panellists

Scott A Hardy, Alston & Bird, Atlanta

Joan Hortalà, Cuatrecasas, Barcelona

Nina Kielman, NautaDutilh, Amsterdam

Anne-Catherine Lorek, Howden CAP, Munich

Hugo Webb, Ambridge Group, London

Bartjan Zoetmulder, Loyens & Loeff, London

Reporter

Mark Galea Salomone, WH Partners, Valletta

Introduction

Tax liability insurance has moved firmly into the mainstream of transactional and advisory practice. Over time it has become a recognised instrument of strategic risk management, deployed across restructurings, capital planning exercises, operational tax positions and even disputes already under active audit.

This conference panel, chaired by Andrew Quinn, brought together practitioners from Europe and the United States to examine how the market has developed, how policies are structured and negotiated, as well as what happens when things go wrong. The discussion was candid, technically detailed and, at points, surprising in terms of the scale of growth it revealed.

What is tax liability insurance?

Nina Kielman began the session with an explanation of the product itself. In essence, tax insurance allows a taxpayer to transfer the financial consequences of an identified tax risk to an insurer. If a tax authority successfully challenges an insured position, the policy responds by covering the losses, which can include accrued interest, penalties, gross-up and defence costs.

An important distinction was drawn at the outset between warranty and indemnity insurance and specific tax insurance. Warranty and indemnity policies are generally designed to cover unknown risks. Tax insurance, by contrast, is designed to cover a known, identified risk, one that has been assessed, potentially supported by a legal opinion and deliberately placed with an underwriter.

The paradigm case is a deal in which a due diligence exercise uncovers a material tax exposure. The buyer may not accept it; the seller might not price it or provide an open-ended indemnity. Tax insurance offers a third path: the risk is transferred to an insurer, the deal proceeds and neither party bears the ongoing exposure.

How the market has evolved

Tax insurance is not new. Joan Hortalà commented that early policies were underwritten in the US as far back as the 1980s, covering inheritance tax positions. The modern EU market, however, took shape primarily in the United Kingdom roughly a decade ago and has since expanded rapidly across continental Europe.

Several forces have driven that growth. Tax authorities across most jurisdictions nowadays are reluctant to issue advance rulings, leaving companies without the certainty they once relied upon. In that environment, insurance has filled a practical gap. Simultaneously, underwriters have built genuine tax expertise, enabling them to analyse sophisticated risks.

The product has also broadened considerably. Coverage now extends well beyond corporate income tax to also cover gift taxes, management incentive plans, capital gains, withholding tax, value-added tax (VAT) and complex cross-border reorganisations. One observation made by Joan Hortalà captured the shift neatly: the more relevant question today may no longer be ‘what can be insured?’ but ‘what cannot?’

There are, of course, limits. Transfer pricing exposures remain difficult to insure in most circumstances, although risks with catastrophic impact may attract coverage selectively. The ideal candidate for insurance tends to be a remote but high-impact risk, particularly one that sits at the centre of a transaction or reorganisation that cannot proceed without a resolution.

Brokers, insurers and the market structure

A significant portion of the discussion was devoted to the roles of the various market participants and how they interact. Anne-Catherine Lorek and Hugo Webb led this part of the discussion.

The broker occupies a pivotal position. Lorek explained that a broker’s role is not merely to place risk but to shape it. Before approaching any insurer, brokers undertake substantial preparatory work to present a risk in a form that anticipates underwriting concerns and positions the legal analysis as robustly as possible. Poor framing at this stage can prevent a submission from reaching the point at which an insurer will even indicate appetite.

Beyond structuring, Lorek commented that they assist in determining where a policy should sit within a corporate group, identify the relevant insurable interests, assess whether layered coverage (sometimes referred to as an insurance tower) is required and determine the appropriate limits. An insurance tower operates in a manner not unlike structured financing: multiple insurers provide incremental capacity, each layer attaching above the last. In practice, a broker may approach eight to ten insurers for any given risk, depending on its size and complexity.

On the insurer side, the market has expanded substantially. Webb discussed how in his experience, ten years ago, only a handful of underwriters were active in this space. Today, approximately 20 market participants offer tax insurance products. These fall broadly into two categories: (1) balance sheet insurers that underwrite risks directly from their own capital and (2) managing general agents (MGAs), in other words, specialist underwriting platforms with delegated authority, backed by larger insurance capacity providers. MGAs typically focus on smaller limits (in the range of €5 to €30m), while larger insurers underwrite significantly higher exposures.

The insurance process

Lorek and Webb walked the audience through the various stages of tax insurance.

Drawing up the initial contact and structuring is the first step, where a client or adviser approaches a broker to assess whether insurance for a tax risk is viable. The framing of the risk at this stage is critical to whether the process will ultimately succeed.

An insurer assesses whether the risk falls within its appetite, considering both the nature of the risk and the likelihood of a challenge by the relevant tax authority. A distinction is drawn between factual risks (such as whether a permanent establishment exists) and legal interpretation issues, which turn on the application of black-letter law. Local counsel is frequently engaged at this stage.

If commercial terms are issued and accepted, Webb noted that the insurer will then kick-off the underwriting process. The insurer will submit detailed questions designed to stress test the legal analysis and identify any weaknesses.

A policy negotiation follows. The policy itself is highly bespoke and tailored to the specific risk. Key issues include the precise definition of the insured risk, the limit and structure, representations made by the insured, exclusions (both standard and risk specific) and conduct provisions, which govern how the audit and litigation strategy will be managed if a challenge arises. Scott A Hardy noted that in the US, negotiations can involve multiple rounds of mark-ups, sometimes seven to nine turns of the document. In the UK and the EU, the process tends to be more streamlined.

Claims and audit handling is the final stage. For many clients, this is often the least familiar stage. If a tax authority initiates an audit or issues an assessment, notification obligations under the policy are triggered. Insurer conduct rights typically activate at this point. The process was described by Webb as broadly collaborative in practice: insurers appoint their own counsel and may engage with strategy, document disclosure and litigation tactics. Compliance with reasonable insurer requests is generally required under the conduct provisions contained in the policy.

Key commercial issues regarding policy terms

Several specific areas of policy negotiation drew particular attention.

Defining the insured risk requires precision. Hardy noted that careful drafting is essential to ensure that the risk description aligns with the analysis provided and the premium paid.

Contest costs are an area of active negotiation. Bartjan Zoetmulder noted that the question of whether defence costs must be funded upfront by the insurer, or merely reimbursed at the end of the process, can have significant practical consequences, particularly in jurisdictions where disputes are prolonged.

Advance tax payments are a related issue. In several jurisdictions, taxpayers must make advance payments during disputes before they can formally contest an assessment. Webb noted that historically, these were excluded from tax insurance policies. There is, however, an emerging trend towards coverage for advance tax payments in certain circumstances, typically at a higher premium.

Additional considerations

A technical but practical question raised during the session by the chair, Quinn, concerned the deductibility of premiums. Hortalà noted that, in principle, where a taxpayer pays a premium to insure against its own tax liability, the cost should be deductible.

One concern raised was whether the presence of a tax insurance policy, visible on financial statements, might signal risk to a reviewing tax authority. The counter argument made by Hortalà is equally viable: that an insurer has assessed the position and considered it insurable at all is itself evidence that the risk is not regarded as highly probable.

A jurisdictional snapshot

In Ireland, Quinn noted that awareness among corporates is growing. Common insured risks include corporate reorganisations, worker classification (employee versus self-employed) and real estate transactions involving capital gains tax and stamp duty.

In the US, Hardy commented that the market is robust and competitive. Energy transactions and tax credits form a substantial segment, alongside traditional mergers and acquisitions (M&A). Policy limits are large and complexity is high. Recently, a tariff-related risk appeared.

Hortalà ended the discussion by describing how underwriting volumes are high in Spain despite the absence of domestic insurers with a meaningful appetite. UK-based insurers frequently deploy specialist Spanish teams. Common risks include real estate transactions, renewable energy, withholding tax, VAT, management incentive plans, family business transfers, research and development (R&D) credits and positions already under active audit.

Conclusion

In summary, the panel provided a clear picture of a market that has matured considerably both in terms of its scale and sophistication. Tax insurance is no longer a last resort or a niche product; it is a tool that experienced advisers now consider early in the lifecycle of complex transactions and tax positions. As cross-border transactions become more complex and tax authority scrutiny intensifies, tax insurance will definitely continue to evolve into becoming a prominent feature of the international tax landscape.