Tax Due Diligence Across Borders: Seven Jurisdictions, Key Risks, Practical Guidance

Tax risks can have a significant impact on the economic outcome of a transaction – and they are not always found where investors initially expect them. A thorough tax due diligence review is therefore an essential element in preparing acquisitions, share deals, restructurings and other cross-border transactions.

Alongside classic areas such as corporate income tax, VAT, transfer pricing, withholding taxes and tax loss carryforwards, country-specific tax rules and compliance requirements can have a decisive impact. Formal obligations, different liability regimes, digital reporting requirements and transaction-specific taxes can result in significant financial exposure if they are not identified at an early stage.

Tax experts from our international alliance highlight selected issues that deserve particular attention when conducting tax due diligence in France, Germany, Italy, Poland, Romania, Turkey and Ukraine.

France – Tax risks, audits and documentation
Germany – Asset Deals vs. Share Deals, loss carryforwards and real estate transfer tax
Italy – Codice Fiscale, dividend taxation and digitalisation
Poland – Tax identification number, dividends and digital processes
Romania – Transfer pricing, VAT and tax audits
Turkey – Inflation adjustment, open tax years and stamp tax
Ukraine – Tax residence, FOP structures and controlled transactions

1. Tax Due Diligence in France

Preparation for a tax audit should not begin only once the French tax authorities have issued a notice of audit. Tax due diligence is designed to identify potential irregularities, uncertain tax positions and problematic filing obligations at an early stage, assess their potential financial impact and, where possible, take appropriate corrective measures.

1. Identifying areas of tax risk

In the context of an acquisition, disposal, restructuring or transfer, tax due diligence will typically cover tax filing compliance, VAT, corporate income tax, intra-group transactions, transfer pricing, tax loss carryforwards, tax credits and exceptional transactions carried out during open tax years.

Previous tax audits, ongoing or potential disputes and significant tax positions adopted by the company should also be considered.

2. Tax audits can have consequences beyond additional tax

The French tax authorities have extensive powers to review taxpayers' positions.

For companies, a vérification de comptabilité allows the authorities to examine the regularity and evidential value of accounting records as well as the accuracy of tax returns.

For individuals, an examen contradictoire de la situation fiscale personnelle (ESFP) may involve comparing declared income with the taxpayer's overall financial and asset position and bank account movements.

A tax audit may result in additional tax, late-payment interest and significant penalties. In serious cases, criminal consequences may also arise.

3. Documentation and proactive tax risk management

A tax position is easier to defend if it can be clearly explained and properly documented. Contracts, analyses, supporting documents and relevant correspondence may prove decisive several years after the underlying transaction.

Proper documentation can demonstrate the consistency and good faith of a tax position and may help distinguish an error or difference of interpretation from intentional misconduct.

Effective tax risk management can therefore be reduced to three principles: identify risks, document them and address them before they develop into a dispute.

Conclusion: A proactive tax due diligence review helps identify tax risks at an early stage, assess their potential financial impact and take appropriate measures in good time. Complete and consistent documentation is just as important as preparing early for potential tax audits.

2. Tax Due Diligence in Germany

German corporate transaction law draws a fundamental distinction between an Asset Deal, involving the acquisition of individual assets, and a Share Deal, involving the acquisition of shares. The distinction has significant implications for the scope of tax due diligence, liability and transaction structuring.

1. Asset Deal or Share Deal – different scope of review and liability

In an Asset Deal, the buyer acquires individual assets of the target company and may depreciate the purchase price through a tax step-up. Tax due diligence is generally more limited and often focuses on the previous two years.

In a Share Deal, by contrast, the buyer acquires the target company together with its historical tax exposure. The review should therefore cover all unaudited or otherwise open years – generally three to five years – and all relevant taxes.

The chosen structure should also be reviewed in light of the purchase price mechanism, allocation of liability and the buyer's financing.

2. Loss carryforwards and Section 8c KStG

If more than 50% of the relevant shares, participation or voting rights are transferred directly or indirectly within five years, unused corporate income tax and trade tax losses may generally be forfeited.

Exceptions may apply under the hidden-reserves clause and the business-continuation-linked loss carryforward under Section 8d KStG.

Due diligence should therefore assess the amount, origin and potential forfeiture of tax loss carryforwards and their impact on the purchase price.

3. Real estate transfer tax in Share Deals involving real estate

If the target company owns German real estate, the acquisition of shares may itself trigger German real estate transfer tax.

Particular attention should be paid to the transaction's signing and closing structure. The country contribution highlights the risk that where signing and closing occur on different dates, the same transfer may have multiple real estate transfer tax implications.

The target's real estate holdings – including indirectly held real estate –, reporting obligations and the intended transaction structure should therefore be carefully reviewed.

Conclusion: Early tax involvement during the structuring phase can help reduce risks, ensure tax compliance and facilitate negotiations between buyer and seller.

3. Tax Due Diligence in Italy

Italian rules governing corporate acquisitions and transfers of equity interests are predominantly based on European Union standards. Nevertheless, the Italian tax system contains a number of specific requirements that should be considered during tax due diligence.

1. Italian Tax Code and registration tax on equity transfers

The acquisition of an equity interest in an Italian S.r.l. or S.p.A. is generally subject to a fixed registration tax of EUR 200 where the transfer is executed by authenticated private deed or notarial deed.

Before closing and registration, a foreign acquiring entity and its legal representatives must obtain an Italian tax identification number, the Codice Fiscale.

According to the contribution, the process usually takes five to ten business days and requires foreign corporate documents with an Apostille or legalisation and a sworn translation. The application should therefore be initiated well before signing.

2. Dividend taxation and beneficial ownership

The taxation of dividends paid by an Italian target to non-resident shareholders depends on the legal nature and residence of the recipient.

The contribution provides for a standard 26% withholding tax for non-resident individuals, subject to potentially lower rates under applicable double taxation treaties.

Different rules apply to foreign corporate shareholders depending on whether they are resident inside or outside the EU or EEA. A full exemption may be available under the Parent-Subsidiary Directive where the relevant requirements are satisfied, including a participation of at least 10% held continuously for at least twelve months.

Required supporting documents should be available before or at the time the dividend is paid.

3. High degree of tax digitalisation

Italy has a highly digitalised tax and accounting system. Invoicing between resident businesses is carried out exclusively in electronic XML format.

Tax due diligence should therefore verify that the target's responsible directors and administrative personnel have the required digital authentication tools and that statutory digital archiving has been properly maintained.

Conclusion: Other key areas include transfer pricing, the correct use of tax credits and pending tax litigation. An appropriate tax indemnity in the purchase agreement may also help protect the buyer against tax liabilities originating before closing.

4. Tax Due Diligence in Poland

Polish rules governing share transactions are largely based on EU standards. However, the Polish tax system includes a number of specific requirements that foreign investors should address at an early stage.

1. Obtaining a Polish tax identification number

The acquisition of shares in a Polish company is subject to Polish tax on civil law transactions (PCC), even where the transaction parties are foreign entities.

The tax amounts to 1% of the sale price and must be paid by the buyer within 14 days of signing the share purchase agreement. The PCC-3 tax return must also be filed within this period.

To pay the tax, the purchaser needs a Polish tax identification number (NIP). According to the contribution, obtaining a NIP usually takes approximately ten to twenty calendar days and requires certified translations of corporate documentation. The application should therefore be submitted before signing.

2. Taxation of dividends paid to foreign shareholders

Dividends paid by a Polish company to a foreign shareholder are only tax-exempt if both substantive and formal requirements are satisfied. These include, in particular, a minimum 10% shareholding.

The formal requirements are particularly important in practice. Relevant documents, such as a certificate of residence and beneficial-owner declarations, should be available at the time of payment.

If documentation is collected only after the dividend has been paid, the Polish tax authorities may challenge the exemption.

3. Highly digitalised accounting and tax processes

A significant proportion of Polish tax and accounting processes are completed electronically, including invoicing, tax returns and financial statements.

The persons responsible for these tasks should therefore have the necessary trusted or qualified electronic signature tools to ensure ongoing compliance.

Conclusion: Other areas of particular relevance include transfer pricing, proper documentation of services and withholding tax issues relating to payments to related foreign entities. Appropriate procedures and compliance measures can help reduce risks and facilitate cooperation with the tax authorities.

5. Tax Due Diligence in Romania

In Romania, three areas regularly account for particularly significant tax findings and purchase price risks, especially where the target forms part of an international group.

1. Transfer pricing and related-party transactions

Under ANAF Order No. 442/2016, as cited in the country contribution, large taxpayers must prepare an annual transfer pricing file once certain thresholds are reached. These include EUR 200,000 for interest, EUR 250,000 for services and EUR 350,000 for goods.

The review should cover the completeness of transfer pricing documentation for all intra-group transactions during open financial years, the plausibility of the methods and margins used and the risk of profit adjustments by ANAF.

The target's classification as a large, medium-sized or small taxpayer should also be verified separately for each financial year.

2. Value Added Tax

In addition to correct VAT registration and input VAT deduction, periodic VAT adjustment obligations for capital goods should be reviewed. The contribution refers to adjustment periods of five years for movable assets and twenty years for real estate.

Automated reconciliation of VAT returns with SAF-T (D406), RO e-Factura and e-TVA is becoming increasingly important. Discrepancies may lead to compliance notifications and, in many cases, tax audits.

Outstanding VAT refund applications and ongoing or completed VAT audits should also be reviewed.

3. Tax liabilities, audits and disputes with ANAF

The Romanian Certificat de atestare fiscală only confirms the tax position recorded by ANAF at the date of issuance and should therefore be reconciled with the company's internal accounting records.

Completed, ongoing and announced audits, their findings and any provisions should be reviewed, together with pending tax disputes.

According to the country contribution, the regular assessment limitation period is five years from 1 July of the following year and ten years in cases of tax evasion. Tax loss carryforwards should also be separately verified.

Conclusion: A careful year-by-year review of these three areas is often crucial for identifying purchase price exposure at an early stage and addressing it appropriately in the transaction documents.

6. Tax Due Diligence in Turkey

In addition to the standard international tax due diligence checklist – transfer pricing, thin capitalisation, withholding taxes and formal compliance – the Turkish tax system includes several country-specific features that foreign investors should examine closely.

1. Inflation adjustment and its long-term balance-sheet effects

Financial statements as at 31 December 2023 had to be restated under Turkish tax procedure rules. According to the contribution, 2024 was the only year in which the inflation adjustment fed through in full to the taxable base. A subsequent legislative change suspended the adjustment for the 2025 to 2027 financial years.

The issue nevertheless remains highly relevant because errors in the original calculation can continue to affect depreciation bases, inventory valuation and the tax cost of participations and real estate.

The review should therefore include the 2023/2024 calculations and index factors, the treatment of the adjustment in the corporate income tax base and its impact on equity and deferred taxes.

2. Which tax years are genuinely open?

The general assessment period is five years. However, Turkey's periodic tax amnesty rules may substantially alter the practical audit exposure.

The comprehensive 2023 amnesty allowed taxpayers to increase their tax base voluntarily for the years 2018 to 2022. Two companies with apparently identical open tax periods can therefore have very different actual exposure.

Loss carryforwards, documentary integrity and any pending or previous tax audits should consequently be examined carefully.

3. Stamp tax and carried-forward input VAT

Turkish stamp tax attaches to the document rather than directly to the underlying transaction. For contracts stating a monetary value, the contribution specifies a rate of 0.948%, subject to an annually indexed cap.

Importantly, intra-group agreements signed outside Turkey may also trigger stamp tax once they are relied upon in Turkey. A comprehensive contract inventory should therefore form part of the due diligence exercise.

Carried-forward input VAT presents the opposite issue: a significant amount may appear as an asset on the balance sheet even though it may never translate into cash. Its treatment in the valuation should therefore be considered separately.

Conclusion: These country-specific issues do not replace the standard tax due diligence checklist but complement it – and may have a significant impact on purchase price and transaction documentation.

7. Tax Due Diligence in Ukraine

The Ukrainian tax system is broadly comparable with European tax systems. Key taxes include corporate income tax, VAT, personal income tax and social security contributions on employment income. Special regimes also exist, including those applicable to individual entrepreneurs (FOP) and companies operating under the Diia City regime.

1. Review the tax residence of shareholders and executives

As a consequence of the war, many Ukrainian entrepreneurs and company executives have moved their residence abroad. Tax due diligence should therefore establish where economically relevant individuals are actually tax resident.

This may affect their personal taxation, the taxation of dividends and other payments and the application of double taxation treaties. Additional reporting and compliance obligations may also arise, particularly in relation to Controlled Foreign Companies (CFCs).

2. Review cooperation with individual entrepreneurs (FOP)

Many Ukrainian companies work with FOP individual entrepreneurs instead of employees.

Such arrangements may be entirely legitimate. However, if the relationship is reclassified as disguised employment, additional tax and social security liabilities may arise.

3. Review purchases from foreign companies

Transactions with foreign suppliers should be analysed to determine whether they qualify as controlled transactions.

The contribution highlights two relevant categories: certain legal forms of foreign companies and businesses resident in jurisdictions included on the Ukrainian government's separate list of low-tax jurisdictions.

Conclusion: In a tax due diligence review in Ukraine, particular attention should be paid not only to standard tax matters, but also to the actual tax residence of relevant individuals, FOP structures and potentially controlled transactions with foreign companies. These country-specific issues may create additional tax, social security and compliance risks.