A Canadian oil and gas company had accumulated various tax losses in the course of its trade. The company was being sold via a merger and the buyer sought protection from the risk of the losses being denied.

The tax lawyers advising the buyer flagged the risk of the tax losses being denied due to a potential change in the nature of the business combined with a change of control of the target. Both the buyer and target business carried out oil and gas exploration and it was difficult to identify such a change. However, having analysed the law and CRA guidance, it was not possible to put the issue beyond doubt and the losses were material to the buyer.

We issued a policy to the target business to protect it against any unexpected challenge from the CRA. The policy covered the tax at stake, interest, penalties and defence costs.