Tax insurance is having a big year amid global crackdown on evaders: report
Companies that offer insurance in case of a major tax bill are having a banner year as governments across the globe implement new rules to go after corporate tax evaders.
Underwriters and tax insurance brokers say their business is in the middle of a boom and that new insurers offering tax-related products are entering the market, according to a report by the Financial Times.
“In some cases, brokers say, companies have been able to buy insurance to cover more than $1 [billion] of tax payments in the event they lose a dispute with the US Internal Revenue Service,” the Times reported Tuesday.
While tax collection initiatives are gaining momentum both in the U.S. and abroad, insurers are wagering that not all of the new enforcement measures will be successful.
If they’re right, policies providing peace of mind against encroachments of the taxman could return a pretty penny.
“There will be a lot of disputes where we think the taxpayer has a very strong position that we think we can support,” Bill Kellogg, head of North American tax insurance at Ryan Transactional Risk, told the FT.
In the U.S., $80 billion awarded in the 2022 Inflation Reduction Act to the IRS for beefed-up enforcement and a general operational overhaul is resulting in tens of thousands of new hires, a major portion of which are auditors.
The agency will hire more than 1,500 auditors this year and more than 7,200 next year, according to an IRS operating plan.
“Global tax authorities are using innovative ways to focus enforcement on high-priority segments. Post-filing, tax administrators in G-20 countries are increasingly introducing tailored treatments to address noncompliance, including, for example, predictive analytics,” the IRS said in its plan, released in April.
Internationally, a push to implement a the Organization for Economic Cooperation and Development’s (OECD) “base erosion and profit shifting” (BEPS) framework has companies worried about the use of international tax havens as well as a 15-percent global minimum tax for large enterprises.
Big-four accounting firm Deloitte describes the minimum tax requirement of the BEPS framework as a “seismic shift in the tax landscape.”
“It’s changing the entire landscape for large international businesses — including impacting data requirements, calculation, and reporting demands,” the company says on its website.
The possibility of more disagreements with global tax authorities is changing the nature of the tax insurance business, the Financial Times reported, moving it away from its provenance in the merger sector, where a single regulatory decision could mean the difference between a negligible or a hefty tax bill.
“The prospect of more disputes with the authorities has encouraged insurers to underwrite a broader range of tax controversies, market participants say,” the Times reported.
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