A tax due diligence serves to apprise the prospective investor of the risks and possible tax liabilities of the target company in order to avoid tax surprises since any unpaid taxes of the acquired company are inherited by the new shareholders. Under present rules, in addition to the unpaid tax, the BIR may also impose a 25% surcharge if a tax return is not filed and paid on time, plus interest at the rate of 20% per annum computed from the time the tax is required to be paid until the time it is actually paid. A tax due diligence may also be useful in identifying potential refund or tax savings that the target company itself may not be aware of. In addition, a tax due diligence can serve to identify and quantify tax assets, such as Net Operating Loss Carry Over (NOLCO) and Minimum Corporate Income Tax (MCIT) credits. read more

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