A client plans to acquire a mid-sized Indian company. How would you carry out tax due diligence?

What the interviewer wants to hear

• Reviews returns, assessments, notices and litigation for open years
• Checks GST, TDS and other indirect tax compliance
• Reviews tax losses, deferred tax and transfer pricing
• Quantifies exposures and classifies them by likelihood
• Recommends protections such as indemnities, escrow or price adjustment and structure

Model answer

I would agree the scope and period first, usually all years still open to reassessment. For income tax, I review returns, tax audit reports, assessment orders, pending appeals and notices, and check unusual items like large cash transactions, related party dealings and disallowances. I check the availability of tax losses, since a change in shareholding can affect carry-forward for closely held companies. For transfer pricing, I review documentation and past adjustments. For indirect taxes, I reconcile GST returns with books, test input tax credit claims against GSTR-2B and blocked credit rules, and check e-invoicing, reverse charge and export refunds. I also test TDS compliance, because defaults lead to interest and expense disallowance. I then quantify each exposure and grade it as probable, possible or remote. Finally, I advise on deal protection, such as specific indemnities, escrow, price adjustments or warranties, and on whether a share purchase or business transfer is better from a tax view.

More hard Tax Consultant questions

• An Indian company has significant transactions with its UAE parent. How would you approach transfer pricing compliance and documentation?
• A client receives a GST show cause notice proposing a large demand for wrongly claimed input tax credit. How do you handle it?
• An Indian entrepreneur wants to set up a company in Dubai to serve global clients while still managing the business from India. What tax issues would you raise?
• A client proposes routing Indian investments through a holding company in another country mainly to reduce capital gains tax. How do you advise?
• An assessment order makes a large addition you believe is wrong. Walk through the remedies and how you would choose between them.
• How does the global minimum tax (Pillar Two) affect multinational groups with entities in the UAE?
• A long-standing client asks you to show some personal expenses as business expenses and to leave out cash receipts. How do you respond?
• An Indian company sends an employee to work at its Dubai affiliate for two years. What tax issues do you review for the employee and the companies?
• A client wants to sell one division of its Indian company as a going concern. What tax considerations would you raise?