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Tax Due Diligence

Tax Due Diligence

Tax Due Diligence refers to the identification and evaluation of tax risks associated with the target or sales object.

Tax risks related to the target are identified and evaluated, thus permitting the buyer to implement respective purchase price reductions. In turn, the vendor complies with disclosure obligations regarding potential tax risks and avoids tactical mistakes in the context of purchase price negotiations. Thus, guarantees and tax exemption schemes can be formulated in the agreement, thus sparing the buyer tax burdens in the future. In addition, important insights into the organisation of the target’s tax department can be obtained prior to the transaction. The information from the tax due diligence can also be used for transaction and subsequent tax structuring.

Typical contents of Tax Due Diligence are:

  • Investigation into whether the target company has complied with its tax declaration obligations in the past
  • Identification of historic tax arrears payment risks or whether such have been previously identified and appropriately accrued for
  • Identification of tax concessions (e.g. loss carryforward) and check on whether such are possibly impaired by the acquisition
  • Formulation of tax guarantees and exemptions
  • Consideration of purchase price reducing tax risks