Tax due diligence is the component of financial due diligence that specifically analyses the tax compliance and tax risks of a target company, with the objective of identifying contingent tax liabilities that could materially impact the acquisition price or require specific protections in the SPA. It is systematically conducted by the acquirer's tax advisors in parallel with the financial due diligence.

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Key areas of tax due diligence include: corporate income tax compliance (tax returns, tax assessments, open years), transfer pricing documentation and risk (particularly relevant for Franco-Swiss groups with intra-group transactions), VAT compliance, payroll tax and social contributions, deferred tax positions on the balance sheet, and specific Swiss tax items (withholding tax, thin capitalisation, capital gain treatment, cantonal tax rulings in force).

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The output of tax due diligence is a tax risk report identifying: confirmed tax liabilities (already assessed by authorities), probable risks (positions likely to be challenged), possible risks (remote but material), and tax opportunities (underutilised losses, refundable positions). These findings directly feed the price adjustment and the tax indemnity provisions in the SPA.

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Example: tax due diligence on a Franco-Swiss group identifies a transfer pricing risk of CHF 800,000 (intra-group service fees without appropriate documentation) and an unrecognised deferred tax liability of CHF 220,000. The acquirer requests a price reduction of CHF 600,000 and a specific tax indemnity covering the transfer pricing exposure for 6 years post-closing.

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At Hectelion, we coordinate tax due diligence with our financial due diligence mandates, ensuring full consistency between financial and tax risk assessments for Franco-Swiss transactions.