The International Tax Due Diligence Report

The International Tax Due Diligence Report by Dr. Ulrich Eder

Scope and Purpose • Scope of Tax Due Diligence • Pre-Due Diligence • Full Due Diligence • Vendor Due Diligence • Special Due Diligence • Purpose • Acquisition decision („deal breaker“) • Determination of the purchase price, allocation of tax risks to seller or buyer • Negotiation of contractual clauses (representations, tax clauses, etc.) • Other purposes Dr. Ulrich Eder, The International Tax Due Diligence Report

Acquisition framework • Type of acquisition • Asset deal / share deal / partnership • Joint Venture Structure • IPO • Venture capital investment • Acquisition strategy • Absorption • Integration • Strategic purchase • Portfolio purchase Dr. Ulrich Eder, The International Tax Due Diligence Report

Information Source • Documents • Trade and land register excerpts • Articles of Association • Tax papers and auditor‘s reports • Loans, licenses, royalties • Transfer and service agreements • Cost allocation agreements and management agreements • Completeness statement • Data room conditions • Contents • Accessibility • Documentations • Missing information Dr. Ulrich Eder, The International Tax Due Diligence Report

Legal and Economic Basis of Target • Company Structure • Legal entities and branches • Places of business • Group Structure • Group entities • Inter-group sales, services and ﬁnancings • Important contracts • Directors‘ agreements, stock options, etc • Subordination agreements • Royalty and interest payments • Shareholders‘ Resolutions • Dividend distributions and resolutions • Minutes of shareholder meeting Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Situation of the Target • Tax Status • Tax entity and tax residencies • Tax groups • VAT Status • Tax history • Tax losses carried forward • Special depreciations and other tax incentives and beneﬁts • Previous reorganizations • Tax effects of acquisition • Survival of tax group status • Implications on VAT status • Survival of tax losses and tax credits • Unidentiﬁed implications Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Bullet Points • Valuation of major shareholdings • Pension reserves and relief funds • Reserves for brownﬁelds / contaminated sites and re-culturing • Investment subsidies • Special depreciation schemes • Input VAT deductions Dr. Ulrich Eder, The International Tax Due Diligence Report

Intra-Group Transactions • Allowances, waivers, hidden contributions • Guarantees, comfort letters, letter of credit • Management fees, royalties, service fees, risk of service fee being deemed royalty • Arm‘s length principle for deliveries and services and other transfer pricing issues • Cross-border tax issues • Deemed agent under double tax treaty regulations Dr. Ulrich Eder, The International Tax Due Diligence Report

Special Tax Schemes • Restructurings • Merger • Transformations • Spin-offs, etc. • Tax models • Aggressive tax positions • Tax reduction schemes (tax shelter) • Leasing transactions, securitization, etc. • Tax structuring related to deal • Poison tax pills • Golden parachutes with tax effects • Etc. Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Return Situation • Tax returns • List of ﬁled tax returns • Duly and in time declared • Unﬁled tax returns • Payments • Taxes paid / withheld • Reserves for future tax returns • Tax rulings • Type and scope • Binding effects • Survival after transaction Dr. Ulrich Eder, The International Tax Due Diligence Report

Pending Tax Obligations • Listing • Disclosed tax obligations • Undisclosed tax obligations • Disclosure obligations regarding special tax schemes • Tax reserves • Calculation • Withholding Taxes paid for • dividends • interest payments • licenses and royalties • Management Fees • Withholding taxes withheld and paid • Arm‘s length requirements • Agreed in advance Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Audit Situation • Pending tax audits • Years still subject to adjustment • Identiﬁcation of individual tax issues • Binding character of audit reports • Expected tax burden and tax reserve policy • Analysis of previous tax audit reports • Tax ﬁndings considered • Other observations considered • Tax rulings / tax clearances • General tax rulings • Rulings after tax audit • Special rulings (withholding taxes, wage taxes, etc.) Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Court Proceedings • Appeals and remedies • Tax court proceedings • Numbers and types • Materiality • Risks • Criminal court proceedings • Numbers and types • Persons concerns • Possible effects Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Results of Previous Years • General view • Previous year • Five previous years • Pre-deal transactions • Pre deal tax restructuring • Changes in accounting methods • Deal related transactions • Special aspects • Tax avoidance schemes • Tax crimes Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Risks • Analysis of tax risks • Paid all due taxes • Recorded adequate reserves to cover tax contingencies • Potential liability for taxes related to unknown exposures • Calculation and quantiﬁcation of tax risks • Incremental taxes, maximum penalties and interest • Temporary and ﬁnal tax effects • Worst tax case, reasonable case, best case • Tax SWOT Analysis • Implications to purchase price and tax representations • Tax risks vs. tax fraud Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Implementation of M&A Process • Transfer taxes • Stamp taxes, stamp duties • Write-down requirements • Capital gain • Claw back of tax reliefs due to change of ownership • Tax implications of residence of parent / target company regarding • Repatriation of proﬁts • Withholding tax on dividends • Capital gains on future disposals Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax Clause Recommendations Dr. Ulrich Eder, The International Tax Due Diligence Report

Tax representations • Pre-closing taxes • Filing of tax returns and payment of taxes • Tax reserves and tax liens • Withholding taxes • Extensions of ﬁling dates • Tax rules and tax sharing agreements • Availability of tax returns • Tax attributes • Depreciations • Tax credits • Technical questions • Knowledge of the seller • Materiality • Taxes due not shown in tax returns Dr. Ulrich Eder, The International Tax Due Diligence Report

Acquisition Structure • Minimizing the tax costs of the transaction • Deductibility / depreciation of acquisition costs • Allocation of purchase price in case of breach of tax representations • Optimal financing structure / tax deductibility of financing costs • Maximizing tax basis • Identifying tax opportunities • Purchase price allocation • Deferral of vendor gains • Optimizing tax structure after transaction • Post-deal tax integration, tax synergies • Is the post deal structure tax efficient? • Tax effects of exit strategies Dr. Ulrich Eder, The International Tax Due Diligence Report

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The International Tax Due Diligence Report

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