Business organizations often look for ways to expand their market share. Many corporate firms acquire other firms intending to expand their business. M&A (Mergers & Acquisitions) are among the common corporate deals signed by business organizations. However, businesses often ignore the tax section during a merger or acquisition. Knowing the tax performance of the target company is important to avoid any future tax burdens. It is why businesses are choosing tax due diligence services over anything else. Read on to know what comes under tax due diligence for businesses.
Understanding tax due diligence
When a business acquires any company, it will also be liable for taxes of the acquired company. Tax due diligence is a thorough investigation for determining the tax performance of the target company. Before signing an M&A deal, you will know about the tax liabilities that will occur. Tax due diligence helps in understanding the tax structure of any corporate firm.
Tax evasion is not the aim of due diligence. Instead, tax due diligence focuses on finding out areas where tax obligations can arise. With tax due diligence, businesses can make informed decisions while signing M&A deals. One can determine unseen tax liabilities with due diligence.
What comes under the bracket of tax due diligence?
Tax due diligence is not just identifying the tax structure of the target company. It is a broad and thorough investigation that uncovers several aspects related to taxes. Services that fall under the bracket of tax due diligence are as follows:
- Tax due diligence services include validation of tax statements/documents provided by the seller. If any tax-related information is being withheld, due diligence can uncover it before signing an M&A deal.
- A corporate deal can be structured with a tax-first approach via due diligence.
- Tax due diligence helps in understanding the target company’s overhead costs. You can also identify areas where you can save taxes with due diligence.
- Transfer pricing implications that can arise in the future can be uncovered with tax due diligence. It is helpful for global firms that are looking to acquire a firm in a foreign land.
- If any losses are to be carried forward, due diligence lets you know about them.
- If there is any incorrect classification of goods/services in tax documents, due diligence helps you correct it.
Best way to approach tax due diligence
The best way to conduct tax due diligence is to outsource it to a reliable CA firm. An advisory firm has many expert individuals that can help a business organization with due diligence. It is better than hiring in-house due diligence experts before a merger/acquisition deal. By outsourcing the due diligence process, you can slash in-house costs.
When you outsource tax due diligence, you can focus on core competencies. With insights generated after successful tax due diligence, you can make informed M&A decisions. Also, if the target company has failed to file tax returns in the past, you can know about it after tax due diligence. Start making better decisions with tax due diligence!