Tax Due Diligence

Any merger and acquisition transaction has to be carefully planned and executed; therefore, before closing a deal and to make more informed decisions, the buyer normally carries out certain agreed-upon procedures to assess the deal from commercial, financial, tax and legal standpoints. Beside important issues,
this includes a spectrum of tax and regulatory issues such as exchange control, income taxes, indirect taxes, and capital market regulations.

The agreed-upon procedures are normally described as a ‘due diligence exercise’. The expiration ‘due diligence’ is not defined by any statute, nor is there any legal binding to carry out the same; on the contrary, it is a creation of conventional practices.

The need for a due diligence exercise can perhaps be linked to the phrase forewarned is forearmed’. Although due diligence is not a panacea against investment failures, it provides the potential buyer with relevant information and business/targets proposed to be acquired and helps manage associated risks.