The main objective of a tax due diligence for a purchaser is to determine the past, present and future tax liabilities of the target entity, including disclosed, undisclosed, realised and unrealised tax liabilities. This will help establish the purchase price and the type of tax warranties and indemnities included in the sale agreement, determine the tax profile of the target entity and assist in the development of an appropriate acquisition and funding structure.
MinterEllison’s tax team is uniquely placed to conduct tax due diligence for all types and sizes of M&A transactions because our tax experts combine accounting and legal qualifications and experience, enabling us to perform tax due diligence from a financial and compliance perspective, and undertake legal tax due diligence as well. Our work includes reviewing potential risks and opportunities, structuring and financing issues from a legal and tax perspective, reviewing legal agreements and advising on appropriate tax warranties and indemnities. Appropriate legal tax due diligence must be undertaken in conjunction with any financial tax due diligence to ensure that key issues and risks are appropriately identified and assessed. Importantly, any legal tax due diligence advice can be protected by legal professional privilege.
Examples of taxes that may be covered in a tax due diligence include income tax, fringe benefits tax, GST, customs duty, stamp duty and landholder duty, withholding taxes, pay as you go obligations, superannuation contribution obligations and payroll tax.
Some issues that are often the subject of tax due diligence include: compliance with preparing and filing different types of tax returns (e.g. income tax, FBT, business activity statements, payroll tax, PAYG reporting and reconciliations); investigations or reviews by tax authorities; tax consolidation tax cost setting calculations; tax sharing and funding agreements; tax losses; depreciation and other capital allowances; capital gains tax transactions; research and development; debt forgiveness; international transactions and transfer pricing; foreign income and deductions; deemed dividend rules and franking accounts.
In addition to tax due diligence services for M&A transactions, we also undertake independent reviews to assess and report on compliance with tax risk management policies and procedures and to undertake independent tax audit preparedness reviews.