Tax Due Diligence When Buying an Irish Company: What Buyers Need to Know

Why a specialist tax review can help identify potential liabilities before an acquisition.

Buying an Irish company involves more than reviewing its financial statements and agreeing a purchase price. For an overview of the wider acquisition process, see our guide to Buying a Business in Ireland.

For a buyer acquiring the shares of an Irish company, understanding the company’s existing tax position is an important part of assessing the transaction. Historic tax issues, compliance gaps or unresolved Revenue matters may affect the value and risk associated with the acquisition.

This is where tax due diligence can play an important role.

What Is Tax Due Diligence?

Tax due diligence is a structured review of a company’s tax affairs before a transaction such as an acquisition.

The purpose is not simply to confirm that tax returns have been filed. A review can examine whether the company has correctly dealt with its tax obligations and whether there are potential liabilities or areas of uncertainty that may need to be addressed before completion.

Depending on the business and transaction, the review may cover:

• Corporation Tax
• VAT
• PAYE, PRSI and payroll
• Relevant Contracts Tax (RCT), where applicable
• Dividend Withholding Tax (DWT), where applicable
• Capital allowances and other tax reliefs
• Tax registrations and filings
• Revenue correspondence
• Previous Revenue audits or compliance interventions
• Outstanding tax liabilities, interest or penalties
• Potential exposures arising from particular transactions or business activities

The scope should be tailored to the target company, its activities, the transaction structure and the risks relevant to the deal.

Why Is Tax Due Diligence Important When Buying an Irish Company?

A share acquisition involves purchasing the company itself, including its existing rights and obligations. This makes the company’s historic tax position particularly relevant to the buyer’s assessment of risk.

A tax review may identify issues such as:

• VAT treatment requiring further investigation
• Corporation Tax positions that may need clarification
• Payroll compliance issues
• Incorrect or incomplete tax filings
• Outstanding Revenue correspondence
• Tax liabilities that have not been adequately recognised
• Transactions requiring further tax analysis
• Identifying these issues before completion gives the buyer an opportunity to understand the potential exposure and consider how it should be addressed as part of the transaction.

Depending on the circumstances, tax findings may feed into negotiations around the purchase price, tax warranties, indemnities or other protections.

What Does a Tax Due Diligence Review Cover?

There is no single checklist that applies to every acquisition. A review should reflect the company’s activities and the specific risks associated with the transaction.

Corporation Tax

The review may examine Corporation Tax returns, computations, payments and relevant tax positions.

Irish-resident companies are generally subject to Corporation Tax on their worldwide profits, subject to the applicable rules. Companies must also meet their Corporation Tax filing and payment obligations with Revenue.

Reviewing the company’s Corporation Tax history can help identify areas where the tax treatment of income, expenses, reliefs or other transactions may require further investigation.

VAT

VAT can create significant exposure where the treatment of transactions has not been handled correctly.

A review may consider:

• VAT registrations
• VAT returns
• VAT treatment of sales and purchases
• VAT recovery
• Intra-EU transactions
• International transactions
• Previous VAT queries or correspondence
• For companies with significant domestic or international sales, VAT due diligence can therefore be an important part of understanding the target’s historic compliance position.

PAYE, PRSI and Payroll

Payroll compliance is another area that can create potential exposure.

The review may consider whether PAYE, PRSI and USC obligations have been dealt with correctly and whether there are potential issues involving employee remuneration, benefits or other payments.

This can be particularly relevant where the company has a significant workforce or operates different remuneration arrangements.

Revenue Correspondence and Compliance History

Tax returns do not necessarily tell the whole story.

Revenue correspondence, previous audits, compliance interventions, settlements or unresolved enquiries can provide important information about the company’s tax position.

A tax due diligence review can therefore include consideration of relevant correspondence and any outstanding matters with Revenue.

Understanding the company’s previous compliance history can help a buyer determine whether any identified issues have already been resolved or whether further action may be required.

How Far Back Should Tax Due Diligence Go?

There is no single review period that is appropriate for every acquisition.

The period should reflect the nature of the business, the transaction, the taxes involved and the potential exposure identified during the review.

Revenue’s statutory assessment time limits can be relevant when considering historical tax risk, but they should not be treated as a simple rule that older periods can automatically be ignored. There are circumstances where different rules or exceptions can apply.

The appropriate due-diligence period should therefore be determined based on the specific transaction and the risks identified.

What Happens If Tax Risks Are Identified?

Finding a potential tax issue does not necessarily mean that an acquisition should not proceed.

The important questions are the nature, size and likelihood of the potential exposure, as well as how it can be managed.

Depending on the circumstances, the buyer may consider:

• Requesting further information from the seller
• Quantifying the potential liability
• Asking the seller to resolve an issue before completion
• Adjusting the purchase price
• Negotiating specific tax warranties or indemnities
• Including appropriate protections in the transaction documentation
• Obtaining additional specialist advice

Tax due diligence can therefore form part of the wider commercial negotiations rather than simply being a compliance exercise.

Why Timing Matters

Tax due diligence should ideally take place early enough to influence the transaction.

The exact timing will depend on the deal, but buyers should avoid treating tax review as something that can simply be completed after the commercial terms have already been agreed.

Early involvement gives the buyer a better opportunity to identify significant issues and consider their potential impact before becoming committed to the transaction.

It can also help the buyer’s wider advisory team determine which areas require further investigation.

What About a Seller Carrying Out Tax Due Diligence?

Tax due diligence is not only relevant to buyers.

A company preparing for a sale can carry out a tax health check or vendor due-diligence review before going to market. This can help identify potential issues while there is still time to address them.

For companies expecting interest from larger corporate or international buyers, identifying potential tax issues early may help reduce surprises during the buyer’s due-diligence process and give the seller greater visibility over its tax position.

When Is Specialist Irish Tax Due Diligence Particularly Useful?

A specialist review may be particularly useful where:

• The buyer is based outside Ireland
• The target has international operations or customers
• The company has a complex tax history
• There are significant VAT or payroll considerations
• The company has received Revenue correspondence
• Previous tax issues have been identified
• The transaction involves a larger corporate or international group
• The buyer already has an internal finance or M&A team but requires specialist Irish tax input

In these situations, the buyer’s existing advisers may handle the broader financial, commercial and legal due diligence while an Irish tax specialist focuses specifically on the target company’s tax position.

How Richard OShea Consultancy Can Help

Richard OShea Consultancy provides specialist Irish tax due diligence for buyers and businesses involved in acquisitions. We can review Corporation Tax, VAT, PAYE/PRSI, tax filings and relevant Revenue correspondence to help identify potential tax exposures before completion.

We can also work alongside your existing legal, financial and M&A advisers, providing Tax Advisory Services focused specifically on the Irish tax aspects of the transaction.

Final Thoughts

Buying an Irish company means assessing more than its financial performance and commercial prospects. Its existing tax position can also be an important part of understanding the risks associated with the transaction.

Tax due diligence provides an opportunity to identify potential issues before completion and gives buyers better information when assessing the transaction and negotiating appropriate protections.

Whether you are an international group acquiring an Irish company or a business preparing for a potential sale, an independent review of the Irish tax position can provide greater clarity before the transaction proceeds.

This article is intended for informational purposes only and should not be considered a replacement for professional advice. The author(s) disclaim any liability for actions taken or not taken based on the content of this document. It is recommended to seek tailored advice before making any decisions related to the topics discussed in this article.