Successfully Challenging the Valuation of a Project Finance Option in a Tax Dispute
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October 17, 2025
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To raise project financing, an investor sold several highly customized options with features such as put/call provisions linked to interest rates, regulatory milestones and volume variability. The tax authority of a G8 country argued that these instruments could be valued using the standard Black-Scholes model and assigned an excessively high valuation, triggering significant tax implications. The investor engaged FTI Consulting to provide an expert analysis challenging the tax authority’s methodology and assumptions.
Our Impact
- The investor was able to present a rigorous, independent valuation analysis during a multiday appeals hearing, backed by FTI Consulting’s expert findings.
- The tax authority did not dispute the analysis or attempt to challenge its assumptions or conclusions.
- During settlement negotiations, the client successfully removed the inflated tax amount calculated using the Black-Scholes model from the final offer.
Our Role
- FTI Consulting’s experts reviewed the terms of the options and the business structure of the investment, which included multiple partnerships, trusts and other investors, each of which could impact the options’ payoffs.
- We evaluated the limitations of using the Black-Scholes model, as suggested by the tax authority, and how it failed to account for the features of the options, including call and put rights, drag-along and tag-along rights, early redemption rights and a variable quantity.
- We also reviewed suggested inputs from the tax authority for valuing the options and explained that they ignored the term structure of interest rates and the term structure and skew of volatility.
- The team summarized our findings on why the Black-Scholes method was inappropriate for valuing the options and presented the details at an appeals hearing with the tax authority.
Published
October 17, 2025
Key Contacts
Senior Managing Director, Leader of Securities, Commodities & Derivatives
Managing Director
Managing Director