Tax due diligence is an effective means to identify tax compliance issues and risks
Our tax attorneys assist clients in identifying potential tax exposures of the target company in an M&A transaction through tax due diligence. To address potential or legacy tax issues identified, they negotiate contractual clauses on the parties’ rights and obligations, representations and warranties, damage indemnifications, etc. while designing transaction structures and drafting transaction documents, so as to effectively avoid any future dispute.
A regular tax health check is also necessary for companies to review their tax compliance status and prevent tax risks in day-to-day operations.
Through interviews with management and business personnel and review of financial, tax, and business documents, our tax attorneys are able to assess the fundamental tax compliance status of the target company, identify potential tax risks, and assist with tax risk management and implementation of remedial measures.
Based on our experience, common tax issues identified in tax due diligence include
- Failure to make adjustments for accounting & tax differences
- Deferred recognition of taxable income
- Overstating expenditures and underreporting income
- Failure to fully withhold and settle individual income tax
- Failure to withhold taxes for outbound remittances
- Unreasonable transfer pricing or tax evasion arrangements
- Abuse of tax incentives
- Fraudulent invoice issues