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.

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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.