Tax indemnity

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The best kind of indemnity. One of the few occasions where contractual indemnity is generally justified and reasonable — if an unexpected tax is imposed on one party in respect of its activity in providing a service (holding assets in custody for example) for the other. It ticks all the boxes of a good indemnity: It relates to liabilities one party incurs carrying out activity for which the other party (exclusively) benefits; it is precise, specific and easy to articulate; it is a genuine contingency in that it is hard to anticipate and therefore cost into one’s service; if it does come about, a tax amount is deterministic in amount, and doesn’t open up the indemnifying person to indeterminate liability.

See also

• Indemnity
• Contingent liability