Tax liability insurance: Creating value across the private equity lifecycle

Eugene Lim Natalie Worthington

Insights

5 minutes

29 July 2026

Tax liability insurance has traditionally been associated with M&A transactions. Today however, private equity sponsors are increasingly using it across the entire fund lifecycle – from acquisitions and portfolio management through to exits and fund wind-down – to manage uncertainty, protect value and maximise investor returns.

This article takes a closer look at how tax liability insurance has evolved beyond its traditional role in M&A transactions and how it can be strategically deployed throughout the private equity lifecycle to create greater certainty, unlock commercial flexibility and enhance value at every stage of an investment. 

Evolution of tax liability insurance

Warranty and Indemnity (“W&I”) insurance has become an established feature in M&A transactions, enabling clean exits, facilitating negotiations and delivering greater commercial certainty.

However, identified tax risks, for example, exposures identified during tax due diligence or tax arising on exit gains, typically fall outside the scope of W&I insurance. As a result, buyers often seek protection through indemnities or escrow arrangements, which can complicate negotiations and delay a seller’s clean exit.

Tax liability insurance was developed to address this gap by covering identified tax risks that fall outside W&I insurance. By transferring these risks to the insurance market, it can replace indemnities or escrow arrangements, allowing sellers to achieve a genuinely clean exit while giving buyers the contractual protection they require. This helps reduce deal tensions and allows transactions to proceed more efficiently.

As the product develops, tax liability insurance has evolved well beyond its traditional role in M&A transactions. Private equity sponsors are increasingly using the product to support group restructurings, manage portfolio-level tax risks and address disputes with tax authorities.

This evolution is accompanied by significant growth in the Asian insurance market. There are now close to 20 insurers with appetite for Asian tax risks, with several maintaining dedicated tax underwriting capability in Singapore to support transactions across the region.

From transaction tool to lifecycle strategy

When faced with investments decisions, legal and tax advice remain the primary tools for assessing identified tax risks. For risks with significant tax exposure, an advisor’s opinion may not provide a sufficient level of comfort, particularly where a high degree of certainty is required. Historically, taxpayers relied on tax clearances as the primary route to certainty. However, tax clearances may produce unfavourable results and may also not align with commercial transaction timelines.

Tax liability insurance offers an alternative route to certainty by transferring identified tax risks to the insurance market. This gives private equity sponsors greater confidence to proceed, maintains transaction momentum (given the shorter time frame to obtain an insurance as compared to a ruling application) and reduces reliance on complex contractual protections.

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Eugene Lim - Head of Tax
Tax liability insurance delivers its greatest value when it's considered as part of the investment strategy - not just when a tax issue arises.
Eugene Lim - Head of Tax
Eugene Lim - Head of Tax, M&A Asia

Tax insurance across the life of a fund

The following examples illustrate how tax liability insurance can support private equity sponsors to generate value at each stage of the investment lifecycle.

  • M&A – Unblocking transactions

    Identified tax exposures can become significant obstacles during a transaction, leading to requests for indemnities, purchase price adjustments or prolonged negotiations. Insurance may enable buyers to ring-fence identified tax risks, potentially allowing transactions to proceed without relying on indemnities or purchase price adjustments. In competitive auction processes, it may also strengthen a bidder's position, while sellers may choose to explore obtaining insurance ahead of a sale process to simplify negotiations and facilitate execution.

  • Cash repatriation – Protecting cash flow

    During the holding period, private equity sponsors may face significant tax leakage when profits are repatriated from portfolio companies, including withholding taxes. Insurance may, in appropriate circumstances, help protect the availability of tax exemptions or preferential rates, supporting cash flow projections and internal rate of returns. Forward looking coverage may be structured to cover exposures in relation to both historic and future repatriation strategies, allowing financial models to be as accurate as possible.

  • Refinancing – Increasing financing flexibility

    Refinancing transactions may create uncertainty around the tax treatment of interest deductibility or debt redemption. By covering identified tax risks, insurance may expand the range of commercially viable refinancing options, potentially giving private equity sponsors greater flexibility to pursue efficient financing structures.

  • Management incentives – Providing tax certainty

    Private equity sponsors and management teams often require certainty around the tax treatment of carried interest and other incentive arrangements. Insurance may, in certain circumstances, help protect the availability of preferential tax treatment for managers, which could assist in preserving investor and management relations.

  • Secondary and continuation funds – Enabling transactions

    Secondary transactions and continuation vehicles can give rise to tax uncertainties associated with changes in ownership, including the availability of net operating losses and the taxation of indirect disposals. In these situations, indemnities may not always be commercially practical. Insurance may help bridge this gap by providing certainty while preserving relationships between selling and continuing investors.

  • End of fund life – Unlocking capital

    As a fund approaches the end of its life, private equity sponsors must assess unresolved tax risks before making final distributions, particularly where limitation periods remain open or disputes may take years to resolve. Insurance may, in appropriate cases, help release trapped cash that would otherwise be retained against potential future assessments, potentially enabling earlier distributions to investors. It may also facilitate the timely wind-down of fund entities by avoiding the ongoing administrative costs of maintaining dormant structures.

Conclusion

For private equity sponsors, the value of insurance may lie not only in transferring risk but in providing confidence to execute decisions throughout the investment lifecycle. Increasingly, insurance is being explored not only to manage identified tax risks, but also to facilitate transactions, preserve value and provide greater commercial certainty. As investment structures become more sophisticated, some private equity sponsors have found value in considering tax liability insurance as part of their broader investment strategy.

Get in touch

We work with private equity sponsors, corporates and investors across Asia to assess, structure and transfer complex tax risks through tailored insurance solutions. If you would like to discuss how tax liability insurance could support your next transaction, investment or portfolio strategy, contact us.

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