Before concluding a transaction, the company is obliged to exercise due diligence and check the business partner for tax debts. If this is not done, the tax authorities may suspect the company of dishonesty.
The Most Important to Know About the Due Diligence Processes
To resolve the dispute about whether due diligence was shown by the taxpayer, most often, it was necessary for the courts. This evaluative concept has been interpreted by the courts all this time in close connection with the specific circumstances of the case and the evidence presented by the parties. The decision of the tax authority based on the results of a tax audit may contain conclusions about the attitude of the taxpayer to the facts of financial and economic activity, which will be used by law enforcement agencies in a criminal case. The due diligence assessment of the taxpayer will be one of the components in establishing the fact of intent in his actions.
Due diligence provides a range of services for individuals and legal entities:
- Lists real estate.
- Registers property rights to real estate.
- It fixes the cadastral and technical plan of the real estate and also issues a cadastral passport with a description of the characteristics of the property.
- Provides accurate valuation.
- Reports information about the existing facts of encumbrance on property and the reasons that led to this.
- Draws up a boundary case, and enters the exact boundaries of the land plot into the USRN extract.
The exact criteria for exercising due diligence are not formalized anywhere, but it is understood that the company, when choosing a counterparty, analyzed all available sources of information about it. Before starting a business cooperation, find out if the future business partner has debts to the budget. The tax legislation does not contain requirements or conditions that make it possible to impose on the taxpayer responsibility for the payment of taxes by its suppliers and contractors.
The courts have repeatedly pointed out that the fact of non-fulfillment by counterparties of the obligation to pay taxes in itself cannot be the basis for imposing negative consequences on the taxpayer of the buyer of goods. The main task of ensuring the on-site regime is to prevent unauthorized persons from accessing information assets and preventing threats to information security.
What Are Ten Typical Due Diligence Questions to Be Ready to Answer?
- What is the company’s organizational structure?
- What are the company bylaws?
- Why should you check the counterparty?
- Where are the company’s most recent annual reports and minutes from board meetings?
- How should a counterparty’s tax arrears be treated?
- What are the company’s articles of incorporation?
- What should you know about caution in choosing a counterparty?
- What are the company’s itemized business expenses?
- What are the main risk and tax implications of the due diligence?
- What is the company’s gross profit margin?
When evaluating the choice of a counterparty, auditors should examine the adequacy and reasonableness of the measures taken by the taxpayer to verify whether the procedure for checking the counterparty differed from the usual practice or the procedure established by the taxpayer. In order to act with due diligence, you need to know the signs of problem counterparties. The tax authorities, in order to recognize a tax benefit as unreasonable, take into account the following features of such counterparties.