In their tax due diligence, prospective buyers will focus on identifying the company’s tax situation and tax risks in order to structure the transaction in such a way that tax risks are manageable. Basically, tax due diligence is a tax audit including the trade tax component. Prospective buyers will want to leave tax payment obligations that were triggered before the transfer date with the seller. Initially, the focus is on income tax and sales tax. Recording the interrelationships is important, especially in the case of companies with foreign subsidiaries. In such cases, experts should be consulted who have a good knowledge of the tax law in the countries concerned.
Tax advisors of the prospective buyers will take a look at the tax assessment and, if necessary, check whether changes are possible. For this purpose, they will want to see the current tax assessment notices and the reports on the latest tax audits. The more recent the tax audits are, the lower the tax risk for prospective buyers, because audited fiscal years are closed for the tax office.
If commercial real estate is to be transferred, the question of a real estate transfer tax possibly accruing is of interest. This aspect should therefore be covered in a site due diligence.
In the course of tax due diligence, it is important to examine whether any tax loss carryforwards may be lost or taken over as a result of the transaction and whether hidden reserves must be “revealed” and taxed as a result of the transaction.
For structuring advice, buyers and sellers should involve M&A-experienced tax advisors.