Safeguarding a Tax-Free Spin-Off: Averting a Billion-Dollar Tax Exposure

A corporate client was undertaking a complex spin-off reorganization ahead of a major acquisition.

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The transaction was structured to qualify as a tax-free non-taxable spin-off, but if it failed to meet stringent tax requirements, it could have resulted in nearly $1 billion in combined taxes for the parties involved. Leveraging its deep tax and insurance expertise, Castle Harbour articulated the risk to underwriters and negotiated an innovative insurance solution. The team secured coverage for the client’s portion of the potential tax hit – hundreds of millions of dollars – at favorable terms. This approach mitigated the existential tax risk and gave the client the confidence to proceed, knowing that if the spin-off’s tax-free status were ever successfully challenged, the resulting liability would be covered.

Policy type: Tax Insurance (Contingent Tax Risk)
Size: $1B+
Sector: Hospitality