Tax due diligence

Tax due diligence is a procedure employed by companies to identify and mitigate risks when making a deal with a counterparty. It involves a thorough analysis of internal documentation and financial and tax reports to ensure they are in compliance with legal requirements. Due diligence increases the attractiveness of an asset for investors, potential buyers and other interested parties.

Aim of tax due diligence

A preliminary audit of reports is of great importance for any business, since the tax burden affects the assessment of the condition and attractiveness of an asset. It can make a business unprofitable and unpromising in terms of investment. As a rule, companies need to conduct comprehensive tax due diligence in the event of:

  • Reorganization of a legal entity
  • Financial restructuring of a company
  • Inspection of the current status of an asset and determination of its subsequent fate
  • Buying and selling an asset

In turn, due diligence aims to identify past mistakes, determine the risks of a tax audit and additional accruals, and find ways to reduce these risks. It also is employed to structure a deal. Comprehensive tax due diligence is rather complicated and consists of several stages.

Companies require tax due diligence when they need comprehensive information on how well they perform their tax obligations. Expert help may also be required if there is a likelihood of claims and penalties from the regulatory authorities. But more often than not, due diligence is conducted to reduce financial risks and assess how profitable a particular transaction is for the company.

Tax due diligence involves the following procedures:

  • Study of the current account
  • Assessment of the tax burden
  • Analysis of tax and social payments
  • Audit of tax and accounting records
  • Assessment of compliance of financial reports with legal requirements
  • Risk forecast and development of recommendations for their reduction or elimination
  • General analysis of the tax situation, forecast in view of possible changes to the legal framework

The VALEN team has extensive experience in the field of tax consulting and can provide comprehensive tax due diligence services.