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    Tax Due Diligence
 
 

Due Diligence
Aims of tax due diligence :

  • Understand the materiality of the deal value.
  • Seek to understand whether there are any tax exposures in the  company that will result in a profit and loss account charge, reduction in balance sheet or additional cash taxes payable.
  • Seek to quantify the potential exposure in respect of issues.
  • Seek to understand the risk of the exposure crytallising.
  • Consider whether the exposure will result in a fall in purchase price, seek contractual protection and consider how it can be used in the negotiating position.

Examples of need for tax due diligence

  • Understands contingent claims and rights of tax authorities to claim tax.
  • Understand tax debtor balances and how they will be recovered.
  • VAT and sales tax issues associated with specific industries – These taxes are based taxes and therefore often material.
  • Payroll taxes issues – individuals are self employed in certain industries but may be treated as employees for tax purposes resulting in significant liabilities for both parties.
  • Thin capitalization/interest deductibility issues and those in respect of prior transactions e.g mergers within group companies.
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