Purpose and Process of Tax Due Diligence
During tax due diligence, the company’s taxation practices are analyzed in detail, including contracts and invoices, to identify tax risks and opportunities. It is important to detect and correct such errors or omissions before the tax authorities discover them and impose penalties.
Steps to Follow During Tax Due Diligence
- Initial assessment and data collection: The first step of tax due diligence is to determine the initial situation and collect relevant data. This includes reviewing the company’s taxation practices and analyzing contracts, invoices, and other relevant documents.
- Identification and evaluation of risks: After data collection, experts identify tax risks and deficiencies. They assess which areas may present potential tax problems, such as improperly applied contracts, incorrect invoicing, or violations of tax regulations.
- Recommendations and optimization: Based on the identified risks, experts provide recommendations to optimize the tax strategy and structure. This may include tax planning, revising the capital structure, exploiting tax optimization opportunities, and reworking documentation.
- Documentation: A detailed report is prepared on the results of the due diligence, summarizing the facts, identified risks, recommendations for improvement, and possible optimization opportunities.
- Review and implementation: The recommendations are reviewed and, where possible, integrated into the company’s taxation practices. This includes implementing a new tax strategy, modifying existing documentation, and reorganizing taxation processes for optimization.
Tax Planning and Optimization
As part of tax planning, experts make recommendations for optimizing the tax strategy and capital structure to minimize tax liabilities. They also assist in revising corporate documentation to ensure compliance with current regulations and reduce tax risks.
Benefits of Tax Due Diligence and the Importance of Confidentiality
Correcting errors and deficiencies identified through tax due diligence is often far less costly than if they were discovered by the tax authorities during an audit. Confidentiality and data protection are of utmost importance in such reviews to comply with data protection regulations and minimize the risk of unauthorized access to information.