Glossary · Diligence
Tax due diligence
Definition
Tax due diligence reviews a company's tax returns, group structure, transfer pricing and open disputes with tax authorities. The aim is to find liabilities the buyer would inherit, so they can be priced in, covered by an indemnity or dealt with before closing.
Related terms
Due diligence The investigation a buyer, investor or lender runs on a company before committing: its finances, contracts, legal position and operations. Indemnity A promise to repay a specific loss in full, often used for known risks found in due diligence. Financial due diligence Diligence on the numbers: earnings, working capital, debt and cash flow behind the headline figures. Commercial due diligence A test of the target's market, customers, competitors and growth plan, to see whether the business case holds. Legal due diligence The lawyers' review of a company: ownership, key contracts, disputes, licences, employment terms and intellectual property. Operational due diligence Diligence on how the business actually runs: processes, systems, supply chain, sites and people. Red flag report A short diligence report that lists only the serious issues, instead of describing everything that was reviewed. Vendor due diligence Due diligence a seller commissions on its own business before a sale, so bidders get one independent report up front.