FiscalGap® Tax Deed Replacement
Information

FiscalGap® Tax Deed Replacement Insurance is designed to provide a seller with a clean exit by eliminating the need for a tax covenant. It replicates the protection provided to the buyer by the tax covenant by effectively substituting an insurance policy in its place. It provides a seller with the ability to exit a business on an accelerated basis because the requirement to provide a long term indemnity is removed. Pre-completion tax liabilities of a target are handled differently from other liabilities of the target because:

  • tax liabilities of the target are usually indemnified on a “pound for pound” basis as breaches of warranties which generally are calculated by reference to “diminution in value”
  • tax liabilities generally subsist for six years As is typical for tax deeds, coverage can be provided for
  • unidentified pre-completion tax liabilities in the target
  • identified and scoped tax exposures (such as those typically covered under a tax insurance policy); and
  • tax benefits or attributes such as tax credits or tax losses that have been priced into the consideration for the target. Subject to the policy limit, all payments are “grossed-up” to put target in same position it would have been in the absence of the claim.
Uses by Deal Point

Some examples of where FiscalGap® Tax Deed Replacement is responsive include:

  • Identified tax exposures stall transaction
    A buyer has engaged an outside financial adviser to conduct due diligence of a target company's tax history. The adviser identified potential tax matters that the buyer could be liable for if the tax authority determines that the target underpaid its tax. The seller is unwilling to provide a tax deed to the seller for any unpaid taxes prior to the completion date. Consequently, the buyer purchased a FiscalGap® Tax Deed Replacement Insurance policy for protection against these known tax matters and any unknown matters that could arise following the completion of the transaction.
  • Tax Indemnity from seller is not available
    A private equity firm is selling the last portfolio company of its fund and wants to distribute the fund's assets back to the investors soon after the sale. As part of the transaction contract, the buyer demands a tax deed with a seven year survival period to cover all of the seller's pre-completion tax liabilities. The seller does not want to provide this indemnity, because it does not want to reserve any assets from the fund for any potential claims. To facilitate the buyer demand for a tax deed and expedite the liquidation of the fund, the seller purchases a FiscalGap® Tax Deed Replacement Insurance policy.
Uses by Transaction Type

Under construction / Coming soon

FAQ:

FAQs

  • What types of taxes can be insured under Ambridge Partners’ FiscalGap® policy?
    Ambridge Partners’ FiscalGap® policy can be offered to cover a wide variety of taxes for transactions involving target companies that have their main operations in the United Kingdom, Canada, the European Union, Australia, New Zealand, South Africa and the United States. Please contact us if you seek insurance for target companies that do not fit this profile.
  • Will Ambridge Partners offer its FiscalGap® policy after a transaction has completed?
    Yes. The three most common instances where a FiscalGap® policy is offered after a transaction has completed are:

    ● the indemnitor or covenantor under the tax indemnity or tax deed given at the time of the
    transaction wishes to insure any exposure that it may have should the buyer make a claim under
    the tax indemnity or tax deed

    ● the indemnified party under a tax indemnity or tax deed has concerns as to collectability of any
    potential claims it may make under the tax indemnity or tax deed, whether because of the
    financial position of the covenantor or indemnitor or because of disagreements between the
    parties as to whether the indemnitor or covenantor has an obligation for the matter claimed

    ● no tax indemnity or tax deed was provided to the buyer at the time of the transaction and the
    buyer wishes to insure the exposures that would generally have been covered under an
    indemnity or a deed had they been given.
  • What can be the components of covered “Loss” under an FiscalGap® policy?
    "Loss" can include the taxes associated with the insured tax exposures, interest on those taxes, gross-up, and in some jurisdictions civil penalties where they are insurable by law.
  • How can I advise my client what limit of liability they should purchase for their FiscalGap® policy?
    As part of the underwriting process, Ambridge Partners will request a description of how the requested limits have been calculated. This should be prepared by your client together with its tax advisor.
  • How long does it take Ambridge Partners to perform a preliminary review of an FiscalGap® Tax Insurance submission?
    Generally Ambridge Partners can provide preliminary terms within 24 to 48 hours. Completion of full underwriting is dependent upon how quickly detailed information is provided. Bindable terms can often be offered within several days after receipt of the initial submission.
  • What type of underwriting submission does Ambridge Partners need so that an initial FiscalGap® insurance proposal can be offered?
    Please provide a copy of the due diligence report(s) prepared to analyze the target company’s pre-completion tax compliance record and to identify any potential pre-completion tax exposures.
  • If no tax due diligence report has been conducted as respects the target company, will Ambridge Partners still consider underwriting a FiscalGap® policy?
    Please contact us to discuss the target company’s tax profile if no due diligence report is available so that we can advise whether Ambridge Partners can consider underwriting the risk.
  • Can Ambridge Partners offer FiscalGap® Tax Insurance where a client has taken an incorrect tax position and is concerned about this position being uncovered on audit?
    No. Ambridge Partners’ FiscalGap® Tax Insurance product is only offered in connection with unidentified pre-completion tax exposures of the target company that are not known to the insured at the time of completion and that crystallize after completion or for identified tax exposures of the target company where the filing position is believed to be proper based upon the advice of tax advisers but may be disallowed by the relevant tax authority in the event of an audit or enquiry.
  • Can a FiscalGap® policy be offered as a tool to assist tax shelter promoters in selling their tax schemes or tax shelter products?
    No. Ambridge Partners' FiscalGap® Tax Insurance products are not designed to be sold in connection with, and do not provide insurance for taxes, interest or penalties associated with any tax shelter products.