In a real estate acquisition, the buyer and its advisers carry out tax due diligence on a historic intra-group restructuring carried out by the target group, the effect of which was that no Stamp Duty Land Tax charge arose at that time despite some properties being transferred as part of the restructuring.
The restructuring transactions were very standard at the time, however in the wake of the subsequent Project Blue decision in favour of Her Majesty’s Revenue & Customs, that original position taken by the target group, was put in doubt.
A third-party buyer now wishes to acquire the target group including the real estate assets but was unwilling to take the risk that the tax position previously taken by the target group was in fact incorrect, particularly in light of the recent challenges brought by Her Majesty’s Revenue & Customs and the court decisions against the taxpayer. The Insured wishes to insure this risk as the seller is unwilling to provide an indemnity for this issue. The policy covers the potential tax liability, interest, penalties and defence costs of dealing with a challenge by Her Majesty’s Revenue & Customs.