Tax due diligence is a thorough examination of all of the taxes that a company will be liable for. involves gaining an understanding of the target company's existing tax structure, and the tax implications of the Normal transaction / Related parties' structure being proposed.
The role of tax due diligence then, is not to avoid taxes, but rather to show where they arise, thus allowing those involved in, to make more informed decisions.
Governments to deter tax evasion, have put in place a series of penalties that make it worthwhile for business owners to ensure their taxes are in order.
Meanwhile making mistakes or oversights in tax due diligence can lead to onerous penalties from the tax authorities.
Whether the purpose of TDD is the acquisition, sale of shares, or for other reasons, it is important to evaluate the tax consequences of such transactions that has tax impacts.
Service beneficial should have:
- Business historical tax risks assessment.
- Assess unutilized tax opportunities.
- Present business tax policy, tax risk management, tax calculation, and declaration function.
- Understand the impact of risks and opportunities on the transaction and its price.
- Recommend the right representations and warranties of transactions that have tax impacts.
The benefits of tax due diligence can far exceed the costs. Overstated Net Operating Losses, underreported tax liabilities, non-filing exposures, failure to charge VAT on sales / Purchases, and payroll tax errors can all result in potentially significant exposures. If a service receivable is not aware of, and protected from, these risks, potential exposures that come to fruition can negatively impact the expected return or profit on a transaction predicted in financial models or the entity image in front of governmental departments.Once discovered, potential risks can be mitigated or eliminated in a variety of ways. That potential exposures can be so significant or clear as to the outcome if the target is tax audited that escrows will not provide a sufficient remedy.
In these circumstances, TDD recommendations have alternative targets to provide effective protection to a TDD beneficiary.
Beneficial investors need to be protected from downside risks in a business in which they have invested significant time and capital. Even where a beneficial does not avail himself of any remedies to identified potential exposures, enables a buyer to make an informed decision and whether to accept or not.
Andersen experts can do tax due diligence on the company to be acquired, sold or assess the business processing itself, advice during the transaction, and help close the transaction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.