Importance of Tax Due Diligence

Tax due diligence is an important step in any merger and acquisition. Understanding what buyers will be paying for upon acquisition of shares/businesses and the potential tax exposures they will be inheriting post acquisition is critical. Going into a deal without understanding what the buyers will be in for can potentially overpay for an acquisition.

Key issues in a tax due diligence project

Identify material tax risks and estimate legacy corporate, withholding, goods and services and employee tax liabilities that impact purchase price and/or will be inherited post acquisition. These are important to facilitate buyers in negotiating purchase price adjustments, indemnities and warranties, time and financial limits for each deal.
Validity of tax incentives and deferred tax assets post acquisition.
Valuation of deferred tax assets post acquisition.
Weaknesses in the governance framework of the targets to identify follow up actions post-closing.

Structuring the deal

Recommend the tax efficient shareholder or buyer entities for the proposed acquisitions.
Estimate the potential tax costs involved in the proposed acquisition, determine purchase price withholding tax applicability and compliance obligations.
Negotiate tax warranties and indemnities.
Determine straddle returns preparation process and negotiate split of taxes for such periods.
Assess any tax exposure relating to indirect transfers, purchase price withholding tax and compliance requirements if applicable.
Complete the accounts review and purchase price allocations to maximise tax efficiency.

How we can help

Our APAC M&A Transaction Services financial and tax specialists can support your M&A activities to help you manage the tax risks you are taking on as a buyer, negotiate the right value you should be paying for the targets and the necessary protection in legal documentation.

Elaine Chow leads the APAC M&A and Private Equity practice in Singapore. With more than 20 years of experience in Asia, negotiating, structuring and overseeing through the implementation of all tax aspects of global M&A deals in the industries, she is equipped with the skills and experience to support you in the regional deals.