Tax Due Diligence
Any merger and acquisition transaction (M&A) has to be carefully planned and executed ; therefore, before closing a deal and to make more informed decisions, the buyer normally carries out certain agreed upon procedures to assess the deal from commercial, financial, tax and legal standpoints. The agreed upon procedures are normally described as a "due diligence exercise". Tax due diligence is the investigation of the current and future tax liabilities of a potential target company. The process requires a review of certain tax documents by professionals with expert knowledge of the tax code of the applicable jurisdictions.
The tax due diligence team will request access to tax returns, financial statements, audit reports, notices of assessments, tax rulings, and memos on tax matters produced by staff and consultants over years. After a review of the documents in the context of the applicable tax law, the team will produce a written tax due diligence report that contains a professional opinion regarding material tax issues and possible future impacts. With information of identified tax positions, the management of buyer can better evaluate the market value of the target company in the price negotiation process.
Nowadays, more and more multinational companies request tax due diligence from external professionals on their foreign subsidiaries for a tax health-check purpose.
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