Delivering Certainty: Eliminating a D.C. Tax Exposure for a Smooth Exit

Castle Harbour assisted a real estate investment fund in eliminating a local tax uncertainty during the fund’s exit from a major investment.

…

The fund had sold its sole remaining property – a high-value commercial building in Washington, D.C. – realizing a substantial capital gain. Because the sale effectively marked the end of the fund’s business activities in D.C., there was an open question under D.C. tax regulations whether the gain would be subject to the district’s unincorporated business franchise tax (D.C. UBT) at the entity level, or if it would pass through to the fund’s out-of-state investors untaxed. This ambiguity threatened to tie up proceeds in reserve and delay final investor distributions. Castle Harbour worked closely with the fund’s tax counsel to resolve the issue via insurance. By clearly articulating the position that the fund’s D.C. business had terminated (making the gain exempt at the entity level), the team obtained an insurance policy covering the risk that D.C. authorities might nonetheless attempt to tax the sale. This solution delivered full certainty to the fund and its investors: they could confidently wind down the fund and distribute sale proceeds, knowing any unforeseen D.C. tax assessment on the transaction would be covered by the insurer.

Policy type: Tax Insurance (Contingent Tax Risk)
Size: $100MM – $250MM
Sector: Real Estate

Buyer type: Financial Sponsor
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.

Overcoming Cross-Border Tax Uncertainty: Facilitating a Strategic Investment

Castle Harbour was engaged to navigate a complex international tax dispute in the context of a private equity investment.

…

A global infrastructure fund was acquiring a significant minority stake in a U.S. company with operations in Mexico. During the deal, a pending challenge by the Mexican tax authority came to light: the authority claimed that the company’s Mexican subsidiary owed substantial withholding taxes on intra-group technical service fees paid to the U.S. parent, despite a tax treaty that exempted those payments. The potential exposure – including back taxes, denied deductions, and penalties spanning multiple years – posed a serious concern for the investor. Leveraging its cross-border tax expertise, Castle Harbour worked with the client’s advisors to turn this contentious issue into an insurable risk. The team emphasized the robust defenses available (including favorable rulings the company had already obtained from Mexican authorities) and tapped into underwriters experienced in treaty-based tax matters. Castle Harbour negotiated a tax insurance policy to cover the disputed liability, ensuring that if the Mexican tax claim were ultimately upheld, the financial impact would fall on the insurer. This innovative solution gave the investor the certainty to proceed with the transaction, knowing that a challenging foreign tax issue had been effectively neutralized.

Policy type: Tax Insurance (Contingent Tax Risk)
Size: $500MM - $1B
Sector: Infrastructure / Logistics

Buyer type: Financial Sponsor
Buyer jurisdiction: U.S.
Seller jurisdiction: U.S.