What are the benefits of TP Insurance?
• Allows an M&A transaction to proceed without price or capital ramifications.
• Promotes adherence to internal TP policies.
• More efficient than seeking prior agreement with tax authority.
• Allows for greater financial confidence at a fixed cost.
What factors will affect the availability and price of a TP Insurance policy?
1 Jurisdictions The number and location of jurisdictions involved in the intra-group arrangements will impact on the price and underwriting process for the policy. Generally single jurisdiction arrangements will be simpler to insure than complex cross-border arrangements. The jurisdictions in question will also impact an insurer’s appetite and the pricing. 2 Pricing model relative to benchmark Where a more ‘aggressive’ TP approach has been adopted, this will impact on an underwriter’s appetite to insure the risk. 3 Sector approach to TP Underwriters will consider the sector’s standard approach to TP modelling and whether the business sector presents any particular risks associated with TP. Taxpayers in industries where intangible assets are a key value driver for the business, such as the fashion industry, are exposed to significant transfer pricing risks while there may be lower risks for a business in the consulting industry, where people are usually the key value drivers. 4 Nature of intra-group arrangements ‘Financing’ TP arrangements, which generally have a lower risk profile due to the ready availability of comparable data, will be simpler to insure compared to TP arrangements related to ‘Goods and Services’ or ‘Royalty payments’. 5 TP documentation and policies Availability and extent of transfer pricing documentation will be a significant factor when determining the availability of insurance. While some insurers may be able to consider providing cover where no benchmarking is available in relation to ‘Financing’ TP arrangements, there is extremely limited appetite to do so for ‘Goods and Services’ or ‘Royalty payments’.
Appetite to insure TP risk varies across the market and using a broker who appreciates these differences, and how this will impact on the availability of a policy for your business, is important. The BMS team has dedicated in house tax counsel and TP specialists that work with our clients and their advisers to ensure that a tailored insurance solution is acquired, wherever in the world it is needed.
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