How to do Tax Due Diligence in M&A

Learn all about tax due diligence for mergers and acquisitions

    Anybody who has ever completed due diligence (DD) on a company will tell you, there are many different types of due diligence in M&A. Tax due diligence is more or less what you’d expect it to be: a thorough investigation into the different types of taxes that might affect a particular business.

    Here, we’re going to discuss the basics of tax due diligence for mergers and acquisitions, from both the buy and sell-side perspective. We’ll look at why it’s important to do a comprehensive analysis, and exactly what information needs to be scrutinized. We even provide a checklist to remove the guesswork.

    Get the tax due diligence checklist

    A digitized template containing all the critical documentation for a seamless transaction.

    Why tax due diligence is required 

    It’s important for buyers to perform tax due diligence in M&A for a number of reasons, the most important being to identify any possible tax deal-breakers. 

    Every business owner knows they’re required to pay income tax, however this is only the tip of the iceberg in terms of potential tax obligations. So, a thorough investigation of a target company’s tax obligations and the tax implications of the deal itself are critical to a profitable transaction.

    The tax due diligence process

    The due diligence process where tax is concerned, involves the following components:
    • Understanding the target’s existing tax structure
    • Understanding the expected transaction structure
    • Reviewing the target’s historical tax compliance
    • Identifying any historical tax exposures
    The aim is to determine what responsibilities, liabilities and tax issues exist. 

    Tax DD sell-side

    It’s not only the buy-side that should be doing their DD. In mergers and acquisitions, it’s advisable for the company that is being acquired to do it too. 

    47% of deals fail due to issues surfaced during DD. If the sell-side conducts DD on their own company before the buy-side gets involved, they can proactively identify gaps and resolve any issues. So when the time comes for the buyer to get involved, the process is seamless and free from delays. 

    Tax DD buy-side

    For the buyer, tax DD is an important step on the path to peace of mind during a high stakes M&A deal. 

    Because of the sensitive nature of this information, the buyer and seller will need to share documents in a secure data room.

    Tax due diligence checklist

    Our tax due diligence checklist covers everything you need to prepare or review (depending on whether you're sell or buy-side) during an M&A deal.

    If you’re the seller, the best advice we can give you for a seamless DD process is to prepare well in advance. However, if you are selling a business in a hurry, Ansarada’s M&A: Company Sale/Exit Pathway is ideal.

    A digitized template for M&A, it contains all the critical data points that ensure a company is healthy and prepared for sale. All you need to do is upload your documentation into the secure platform. Then, when it’s time to exit, all your information is structured and ready to transfer seamlessly for a swift deal.

    Not only that, Ansarada gives you access to 24/7 expert deal support. So if you have any questions about the tax DD part of M&A, you have our AI-powered insights and advisory services, based on 23,000+ previous transactions, to rely on.