Due diligence is a set of measures taken by the taxpayer to check the reliability of his counterparty before concluding an agreement with him.

What Is Due Diligence and How to Exercise It?

Due diligence is not just important; it is very important. This helps to quantify the risks involved in purchasing a property to ensure that the buyer is not exposed to any inaccuracies or misleading claims. Without due diligence, buyers rely solely on the emotions they derive from marketing and salesmanship. Buyers must ensure that any property they purchase is of acceptable quality, that it is legally protected by all means, and that what they buy is a safe and sound investment.

The main thing in exercising due diligence when choosing a counterparty is this: if you do not take any measures to eliminate undesirable consequences, you are not exercising the necessary diligence. Such a benefit is considered unreasonable only if, during the audit, the tax authorities identify and can prove that the payer did not comply with due diligence. That is, he was obviously aware of violations by the counterparty. For example, due to the connectedness of both sides.

How to Do Due Diligence in 2022?

The economic essence of due diligence operations is that the integration processes, which are aimed at achieving competitive strategic advantages within the framework of change management, are characterized by high dynamics and are carried out through the mechanisms of reorganization, restructuring, and establishment of corporate control.

In practice, there is no clear algorithm for this mechanism. However, as part of due diligence when choosing a counterparty, it is necessary to perform a number of basic actions:

    • Develop and implement a provision for contractual work;
    • Include in the job descriptions of employees a clause on responsibility for non-compliance with the above requirements;
    • Draw up regulations regarding due diligence requirements;
    • Send a written request to the counterparty for the provision of documents as part of due diligence;
    • Setting a password for individual folders or files;
    • Create notes, to-do lists, and other simple documents through the built-in service;
    • Use through the web version, desktop, and mobile applications.

In What Cases Should Due Diligence Be Carried Out?

Due Diligence is beneficial to both parties to the transaction. The investor can evaluate in detail the prospects of the business he is interested in and ensure the legal purity of the transaction. The seller is to confirm good faith and, as a result, receive new profitable offers. Serious damage to the business is caused by the hacking of Internet applications, as a result of which attackers gain access to the server and act on behalf of the hacked company.

Due Diligence must be carried out if you directly or indirectly intended to invest in another business:

      1. become a co-founder;
      2. issue a loan;
      3. carry out a merger with another company or its absorption;
      4. become the owner of a share in the company;
      5. become a sponsor, etc.

Besides, tax legislation does not contain a specific list of documents that a taxpayer must request from a counterparty in order to minimize tax risks. With regard to specific situations, the exercise of due diligence and caution by the taxpayer when concluding transactions can be confirmed by various documents. Depending on the selected type of technical support, the responsibility for the high-quality operation of the server falls partially or completely on the shoulders of the provider.