Multinational Companies Face Increased D&O Risks With Tighter Insurance and Tax Regulations

Risk managers must ensure they have adequate directors and officers (D&O) coverage, as shareholder lawsuits increase with U.S. companies expanding overseas, according to a recent white paper published by Business Insurance.

Source: Source: Marsh | Published on November 11, 2010

Stricter laws now demand full compliance with the insurance and tax regulations in the foreign jurisdiction where the companies operate.

"There’s been a rising tide of countries focusing on improving corporate governance and becoming more aggressive in regulation and cross-border cooperation, especially regarding securities fraud,” said Tripp Sheehan, managing director, Marsh U.S. directors and officers practice leader.

Traditional master D&O programs may not protect foreign executives in many parts of the world, and could trigger significant tax liabilities for the organization, according to experts.

If a program is not structured properly, an insurance recovery for an overseas D&O loss could create tax consequences for a parent company.

"An overseas loss that is covered by a traditional master global program can be double taxed,” noted Praveen Sharma, senior vice president, Marsh Insurance Regulatory and Tax global practice leader.  “Altogether, the organization could face a nearly $4.4 million tax obligation on a $10 million insurance recovery.”