Skip to main content

Tax Due Diligence

Buy-side and sell-side transaction support

We analyse and quantify industry, country and deal-specific tax risks and opportunities to assist clients in developing negotiating positions as part of a deal.

Vendor Assist Services

On the sell-side, a Mergers & Acquisitions Tax ‘readiness review’ can assist you in the following ways:

  • Assessing compliance with tax obligations and proposing risk mitigation strategies to assist clients in resolving matters before the due diligence process begins
  • Understanding the tax impact of the proposed sale structure on sale price and ongoing post-sale operations (if applicable), including reviewing the debt and capital structure and transfer pricing matters
  • Providing hands-on support through all stages of the sale process from establishing and executing a tax implementation plan, to advice on the tax implications of the sale and purchase agreement, and assistance with a review of tax balances in the completion accounts
  • A vendor due diligence allows you to take control of the due diligence process, and if timed appropriately, can provide you with an opportunity to formulate and implement mitigation strategies with regards to identified tax risk. begins begins

Tax Due Diligence

Scoping is a critical first step in a quality tax due diligence review. There are some fundamental considerations in scoping your tax due diligence for key risk identification:

  • Get buy-in from key-stakeholders in determining the materiality level to confirm that the due diligence will satisfy the requirements of each interested party
  • Consider whether an asset or share deal is appropriate based on the current ownership structure
  • Identification of risk areas, as influenced by the profile of the target (e.g. if the business is workforce intensive, employment taxes might be considered a key risk area)
  • Generally taxes to be covered includes income tax for the ‘open’ review period (e.g. four years in Australia) along with relevant indirect tax items (e.g. GST and employment taxes) depending on their importance to the target’s tax profile
  • Consider scoping-down foreign jurisdictions that are not financially significant
  • Consider whether warranty and indemnity insurance will be obtained, and if so, ensure the tax due diligence is scoped appropriately to ensure there are no limitations on the policy
  • Ability to rely on a vendor tax due diligence report may result in the scope of a tax due diligence being reduced (or adopt a ‘phased’ approach)
  • Working within a specific budget and timeframe will invariably result in a prioritisation exercise to determine which procedures should be undertaken.

In this paper, presented to the Tax Institute of Australia, Deloitte Partners Paul Culibrk and Fiona Cahill look at the role of the tax due diligence process as an important tool to manage risk.

TIA paper