Tax Due Diligence – determining transaction opportunities and risks

Why tax Due Diligence?

Tax due diligence is usually made in case of a company purchase, a merger, a company going public, acquisition of shares or a management change. Here, the specific tax related opportunities and risks get determined – operative ones as well as financial ones. Based on this transaction consultants compile concepts to make the tax burden as light as possible. Furthermore, financing possibilities and the purchase contract are getting analysed by looking at tax related criteria. The specific objects of examination are always agreed upon with the client – just as with the other due diligence processes. Usually, the client will be the potential buyer.

Apart from an M&A advisor a tax accountant and a tax lawyer are mandatory.

Application of a tax Due Diligence

• Overview of the business / the enterprise (holding/subsidiaries/integrated companies)
• Tax declaration and assessment, field auditing, binding consents>
• Share sale agreements>
• Previous restructuring
• Annual financial statements and individual balance sheet items
• Contracts with partners /  associated third parties
• Foreign subsidiaries
• Special issues

Stumbling Blocks

The outcome of the tax due diligence are the basis for laying down liability and warranty conditions of the purchase contract. Often the seller is not really aware of his opportunities with a tax due diligence. Although the “bride” can be “decorated” by getting tax risks out of the way before the actual selling process takes place. The result, in turn, will be a higher purchase price.