GuidesTaxNovember 5, 2026Dennis Raisich

Tax due diligence

Tax due diligence looks for the tax risks that pass to the buyer along with a company: open tax years, transactions that would have to be treated differently for tax purposes, and the consequences of the purchase itself. In a share deal, past tax liabilities stay in the company and therefore, economically, with the buyer.

In short

The review covers the years that are still open for tax purposes: profit taxes, VAT, payroll taxes and taxes withheld at source, and in Switzerland also the Swiss withholding tax.
Typical findings include constructive dividends, transfer prices within the group and the consequences of earlier restructurings.
The purchase itself can also trigger taxes, for example when loss carryforwards are forfeited.
Risks are usually covered in the purchase agreement by a tax indemnity.

What does tax due diligence examine?

Tax returns, assessments and correspondence with the tax authorities for the open years
Tax rulings and the conditions they depend on
VAT: returns, input tax deduction, results of previous audits
Payroll-related costs, taxes withheld at source and social security contributions
Payments and benefits to shareholders and related parties
Transfer prices between group companies
Restructurings, mergers and spin-offs in recent years
Loss carryforwards and whether they can still be used after the purchase

What applies in Switzerland?

Constructive dividends. If a company pays its shareholder or a related party more than a third party would receive, such as an inflated salary or excessive rent, the tax authorities can treat the excess as a constructive dividend. The company may then face profit tax and the 35% Swiss withholding tax.

Indirect partial liquidation. If a private individual sells a stake of at least 20% to a company, part of the tax-free capital gain can become taxable income (Art. 20a of the Federal Act on Direct Federal Tax (DBG)). This happens if, within five years and with the seller’s involvement, the company sold distributes funds that it does not need for operations and that were already there and distributable at the time of the sale. The seller is the one affected, which is why the seller usually asks the buyer for undertakings in the purchase agreement. This affects how the purchase can be financed.

Statute of limitations. For direct federal tax, the right to assess a tax expires five years after the end of the tax period, but no later than 15 years after it (Art. 120 DBG). The review looks back just as far.

What applies in Germany?

Loss carryforwards. If someone acquires more than 50% of the shares in a corporation, its unused losses are generally forfeited (Section 8c of the German Corporate Income Tax Act (KStG)). Exceptions exist, for example, within a group, up to the amount of the hidden reserves and for the loss carryforward tied to the continuation of the business under Section 8d KStG.

Real estate transfer tax. If the company owns real estate, a purchase of shares can also trigger real estate transfer tax where at least 90% of the shares are transferred.

Statute of limitations. The assessment period is generally four years and usually starts at the end of the year in which the tax return was filed (Sections 169 and 170 of the German Fiscal Code (AO)); in cases of tax evasion, it is ten years.

How are tax risks handled in the purchase agreement?

Tax risks can rarely be fully resolved before the purchase. The parties therefore deal with them in the agreement. A tax indemnity is common: the seller indemnifies the buyer against taxes relating to periods before the reference date. In addition, there are warranties on the tax position, a holdback of part of the purchase price or an escrow account. The findings of the tax due diligence determine how far these provisions need to reach.

Tax due diligence with AI

majiq assigns every document to its area, including tax returns, assessments and correspondence with the authorities, and shows which documents are missing. majiq cross-checks the areas, such as contracts against financial statements, and records contradictions as findings, each backed by evidence from the documents. Evaluating the tax issues stays with the specialists.

Frequently asked questions

Who is liable for past taxes after the purchase?

In a share deal, the company itself, which in economic terms means the buyer, unless the purchase agreement provides otherwise. In an asset deal, the acquirer is liable only in certain cases; in Germany, Section 75 AO governs liability for business-related taxes.

Who carries out tax due diligence?

Tax advisors, accountants or the tax departments of audit firms, often in the same team that handles the financial due diligence.

What is a tax indemnity?

A provision in the purchase agreement under which the seller indemnifies the buyer against taxes attributable to the period before the reference date. It also governs who conducts proceedings with the authorities and how long the claim remains valid.