What is tax due diligence?
Tax due diligence is the buyer’s structured review of a target’s tax position before an investment or acquisition: filed returns, open periods, audits and disputes, VAT and withholding compliance, payroll and social security exposure, transfer pricing, and the tax attributes that survive closing. Its output prices risk: findings move the purchase price, create escrows and indemnities, or occasionally kill the deal.
What it covers in a Turkish target
The Turkish review runs across corporate income tax, VAT including reverse charge on imported services, withholding on cross-border payments such as royalties and services, stamp tax on contracts, payroll taxes and social security premiums, and incentive regimes actually relied on, from Technopark exemptions to R&D deductions, where eligibility errors quietly accumulate into the largest exposures. Statute of limitations matters: five years is the general assessment window, so diligence focuses there while watching loss carryforwards and ongoing incentive commitments that reach further.
How findings become deal terms
Quantified exposures land in three buckets: price reduction for near-certain liabilities, escrow or holdback for probable ones, and specific indemnities for identified risks like an open audit. Tax representations then cover the unknown residue. The seller’s best defence is preparation: cleaning filings, documenting incentive eligibility and pre-empting questions before the data room opens. We cover both playbooks in the tax due diligence guide.
How far back does tax due diligence look?
The Turkish assessment window is generally five years, so that is the core review period; longer for attributes like carried-forward losses or incentive commitments with multi-year conditions.
What are the most common findings in Turkish tech targets?
Withholding gaps on cross-border service and licence payments, VAT reverse charge omissions, misapplied Technopark or R&D exemptions, and stamp tax on unstamped agreements. None is usually fatal; all are priceable.
Who pays for pre-closing tax exposure?
The SPA decides: indemnities and escrow put identified pre-closing taxes on the seller, and the negotiation is really about caps, baskets and survival periods rather than the principle.
Related terms: due diligence, holdback, royalty.
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