Tax due diligence before buying, selling or taking investment

Why this review happens before, not after

A company's tax risk does not disappear when ownership changes: it travels with the entity. A buyer who fails to measure it buys a named exposure, and a seller who does not know about it discovers it at the negotiating table, at the worst moment and with the counterparty deciding what it is worth. The review exists so both sides argue about the same thing, with figures.

What we review

• The returns for years not yet time-barred and their consistency with one another.
• The support behind the most relevant items: contracts, invoices, supporting documents and minutes.
• The tax benefits claimed and compliance with the requirements that enable them.
• Formal obligations: electronic invoicing, withholding applied, information reported to the authority.
• The local tax front, usually left out of scope and where omissions most often appear: business tax, property tax and other municipal charges.
• Ongoing procedures before the DIAN or local tax offices, their real status and what is actually in dispute.
• Tax credits, losses and refunds the buyer expects to use, and the conditions for using them.

From finding to decision

An unranked list of observations helps nobody. Each finding is presented with three things: what happened, how likely the authority is to challenge it, and how large the effect would be if it does. That is enough to decide on, which is the point.

• Exposures worth correcting before closing, with the cost of doing so.
• Exposures to be provisioned or held back from the price.
• Defensible positions that only need the reasoning documented.
• Matters that change the structure of the deal or the closing timetable.

How it feeds into the contract

A finding that never reaches the document is lost. We work with the team drafting the contract so that what was found ends up in clauses that work when they are needed.

• Tax representations and warranties, drafted around the real risks of the business rather than a template.
• Tax indemnities: scope, duration, caps and what happens when the authority challenges a pre-closing period.
• Rules for handling the procedure when a request arrives after closing: who answers it, who decides whether to argue and who pays.
• Price retentions, escrow and adjustments tied to the exposures identified.
• A tax reading of the deal structure and its alternatives, including asset sale versus share sale.

On the sell side too

The review is not only a buyer's tool. A seller who arrives with its years reviewed, its support in order and a written explanation of the arguable positions negotiates differently: it narrows the room for last-minute discounts and shortens the counterparty's diligence. When we act for the seller, we prepare that material before the process starts.

What the client receives

• A list of exposures by tax year, with a description of the finding, its basis and the risk attached.
• Identification of the weak tax positions and of the ones that hold up, stated without ambiguity.
• Drafted input for the tax representations, warranties and indemnities in the contract.
• An opinion on the tax reading of the deal structure and on its alternatives.
• Scope agreed in writing and confidential handling of everything reviewed.

Typical situations we handle

• A buyer is studying a company and needs to know what tax risk is included in the price.
• A shareholder is about to sell and wants to anticipate what the counterparty will find.
• A fund or investor comes in and requires a tax review as a condition precedent.
• A group is about to reorganise internally and needs the tax reading of the structure before executing it.
• The deal has closed and a request arrives about a pre-closing period.