What for?
Audits bearing the ‘due diligence’ phrase are already standard in terms of due diligence within an investment process that involves purchasing shares in an existing business entity that is independent of the buyer. Purchasing shares in, e.g., a company, unlike purchasing only the assets in this company, entails an investor taking over its entire history, also in relation to liabilities and receivables. In tax-related terms, this means the risk of taking over disclosed or undisclosed tax liabilities or arrears of the purchased enterprise for non-overdue historical periods.
The know-how and extensive experience of our experts allows us to offer top-class tax-related transaction consulting services, which also include tax due diligence. A consequence of our work is the verification of the overall tax standing of a target-company, and the analysis and valuation of potential risks related to taxes and social security (ZUS-Social Security Office).
In justified cases, due diligence tax audits with a limited scope also target the planned acquisition of complex assets (not company shares), e.g., of an enterprise, organized part of an enterprise or real estate.
For whom?
Legal or natural persons that intend to purchase shares in companies, pledge shares, exchange shares, conduct a merger or acquire shares otherwise. Recipient of a due diligence service may also be financial institutions that plan to verify the tax standing of their debtor. In justified cases, a due diligence tax audit with a limited scope is recommended in relation to a planned acquisition of complex assets, e.g., of an enterprise, organized part of an enterprise or real estate.
How?
A due diligence tax audit primarily includes:
- verifying the correctness of tax settlements in the light of regulations applicable in the field of corporate income tax, value added tax, personal income tax, as well as social security contributions, tax on civil law transactions, and property tax
- identifying primary tax risk areas related to tax liabilities of the acquired company, with particular reference to their impact on the current financial standing of the company, and the future tax standing of the investors
- measuring – taking into account data availability and project limitations – the value of identified risk and their materialisation probability.
A due diligence audit is only a part of the transaction process. It is usually preceded by signing of a letter of intent and formulating the fundamental legal, financial and business assumptions of the future transaction (term sheet). Whereas the due diligence itself precedes further steps aimed at finalising the transaction, such as mitigating identified risks, transaction structuring, negotiating a share buy-sell contract and its key elements, including the final pricing formula, warranties or collaterals. The involvement of an experienced tax consultant is generally required or advisable at all of the aforementioned stages.
