Taxation
Taxes and obligations
"Corporate income tax, VAT, personal income tax (IRPF) withholdings and local taxes: returns filed, payments, deferrals and formal compliance."
Tax Due Diligence in Spain: What It Is and How It Works in a Transaction
We review the tax position of the target company in your M&A and investment deals: tax contingencies, open tax years, related-party transactions and successor liability, to protect the price and build solid protection into the contract.
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- Limitation period to assess tax
- 4 years
- Audit of tax losses (BINs)
- 10 years
- Deadline for the tax debt certificate
- 3 months
- Successor liability
- LGT Art. 42(1)(c)
Services
How we handle your tax due diligence
Six workstreams to review the target’s tax position and protect your deal, from the analysis of contingencies to how they fit into the contract and closing, whether it is an acquisition, an investment or a stock market listing.
Review
Tax due diligence on the target
We analyze the target company’s tax position: taxes, returns, payments and risks, so you know what you are buying before you sign.
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CITVATWithholdingsContingencies
Contract
Contingencies and contract protection
We carry the findings into the sale and purchase agreement: representations and warranties, indemnity clauses, price holdbacks and adjustments.
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SPAReps & warrantiesIndemnity
Investment
DD for investment and private equity deals
We support the tax due diligence carried out before investors or private equity funds come into a company.
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Private equityInvestors
Capital markets
Tax DD for a stock market listing
We review the tax position ahead of a listing or securities issuance, supporting the information in the prospectus.
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ProspectusIssuance
Risks
Tax risk map
We identify, quantify and prioritize the tax contingencies found in a clear risk map.
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MapQuantification
Closing
Transaction and compliance
We integrate tax due diligence with the rest of the process (legal, financial) and the compliance framework through to closing.
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ProcessCompliance
What it covers
What tax due diligence covers
The tax review of the target covers general taxation, the tax years still open to review, related-party transactions, and open contingencies and litigation.
Time limits
Open tax years
"Review of the tax years that can still be assessed (4 years) and of tax losses carried forward and deductions, which can be audited for up to 10 years."
Related parties
Related-party transactions
"Transfer pricing and documentation of transactions with related parties, one of the areas with the highest risk of adjustment."
Litigation
Contingencies and litigation
"Ongoing tax audits, inspection reports, penalties, appeals and ruling requests: risks that can turn into future debt for the buyer."
Why it matters
Why carry out tax due diligence?
In an acquisition, the buyer may inherit the target’s tax contingencies. Due diligence lets you detect them, quantify them and reflect them in the price and the contract before you sign.
The buyer inherits contingencies: anyone who succeeds to the ownership or operation of a business activity is jointly and severally liable for the previous owner’s tax debts.
The certificate can limit it: requesting a tax debt certificate from the Spanish Tax Agency (AEAT) limits the acquirer’s liability to what the certificate states.
Impact on price and contract: the contingencies found are reflected in the price, the representations and warranties and the indemnity clauses.
LGT Art. 66
4 years
Limitation period for the tax authorities’ right to assess the tax debt.
LGT Art. 66 bis
10 years
Period to audit tax losses and deductions applied or pending application.
LGT Art. 175(2)
3 months
Deadline for the AEAT to issue the tax debt certificate that limits the acquirer’s liability.
Are you about to buy or invest in a company?
Before you sign, we help you review the target’s tax position, quantify the contingencies and protect the price and the contract with representations, warranties and indemnities.
Frequently asked questions
Tax due diligence: common questions
What is tax due diligence?
It is the review of a company’s tax position before a transaction (acquisition, investment, financing or stock market listing), to identify tax risks and contingencies that may affect the decision, the price or the contract.
What is it for in an M&A deal?
It tells you what you are buying: quantifying contingencies, setting the price, allocating risks between buyer and seller and designing the contract protections (warranties and indemnities).
What exactly does it review?
Corporate income tax, VAT, withholdings and local taxes, related-party transactions, tax losses and deductions, and contingencies (tax audits, inspection reports, penalties and appeals).
How many years back does the review go?
As a general rule, the tax years that are not time-barred: the right to assess becomes time-barred after 4 years. However, the tax authorities can audit tax losses and deductions for 10 years.
What happens to the contingencies found?
They are quantified and reflected in the deal: price adjustment, representations and warranties (reps & warranties), indemnity clauses and, where appropriate, a holdback of part of the price (escrow).
Does the buyer inherit the tax debts?
There may be joint and several successor liability for the previous owner’s debts when a business activity is taken over (LGT Art. 42(1)(c)). Requesting the tax debt certificate from the Spanish Tax Agency (AEAT) (LGT Art. 175(2)) limits that liability.
What are related-party transactions in a DD?
They are transactions between related parties (group companies, shareholders, directors), subject to transfer pricing rules and documentation obligations; one of the areas with the highest risk of tax adjustment.
How does it fit with legal and financial due diligence?
Tax due diligence is one module of the due diligence process, coordinated with the legal, financial and employment reviews to give a complete view of the target’s risks.
People also ask
Timing, certificate and type of deal
How long does a tax due diligence take?
It depends on the size and complexity of the target and on the information available in the data room. It usually runs in parallel with the rest of the due diligence, within the deal timetable.
What is the LGT Art. 175(2) certificate?
It is the detailed certificate of tax debts, penalties and liabilities that the acquirer can request from the Spanish Tax Agency (AEAT), with the current owner’s consent, to limit its successor liability; the tax authorities must issue it within three months.
How is it different from an audit?
It is not a statutory audit of the accounts. Tax due diligence is a review aimed at identifying tax risks and contingencies for a specific transaction, not at issuing an opinion on the financial statements.
Is it done in share deals or asset deals?
In both, with different approaches: in a share purchase (share deal) you take over the company with its tax history; in an asset purchase (asset deal) the risk perimeter and successor liability are assessed differently.
What documents are requested from the seller?
Tax returns and self-assessments, books and records, proof of payment, inspection reports, requests for information, appeals, related-party transaction documentation and support for the tax losses and deductions applied.
Who carries out tax due diligence?
It is usually commissioned by the buyer or the investor from their legal and tax advisers, who review the target’s documentation and issue a report on the contingencies and their impact.
Types of due diligence
Tax, legal, financial and employment: comparison
Tax due diligence is one of the areas of the pre-transaction review. We help you coordinate it with the others so that the buyer or investor gets a complete view.
What determines the scope of the work
The scope of tax due diligence depends on the type of transaction, the size of the target and the information available in the data room.
- Transaction
- Acquisition, investment, financing or stock market listing.
- Perimeter
- Share deal or asset deal.
- Tax years
- Years not time-barred (4 years) and BINs/deductions (10 years).
- Output
- Contingency report and impact on the contract.
How we carry out the review
We start from the scope and the data room, review tax by tax, quantify the contingencies and carry the findings into the price and the contract.
- Scope, information request and data room.
- Tax-by-tax review and quantification of contingencies.
- Report and fit into the price and the contract (SPA).
| Type of DD | Tax | Legal | Financial | Employment |
|---|---|---|---|---|
| What it reviews | Tax position | Legal position | Financial position | Employment position |
| Focus | Taxes and contingencies | Corporate matters, contracts and litigation | Accounts, debt and cash | Workforce and collective agreements |
| Typical documents | Tax returns, inspection reports, BINs | Deeds and contracts | Financial statements | Employment contracts and social security |
| Output | Contingencies and price adjustment | Legal risks and warranties | Quality of earnings | Employment contingencies |
Indicative table. The scope and approach of each due diligence area are tailored to each transaction and coordinated with one another.
Practical guide
How to carry out a tax due diligence: a practical guide
A tax due diligence is not just a matter of reviewing tax returns: you need to define the scope, gather the information, identify and quantify the contingencies and reflect them in the price and the contract.
Define the scope
The first step is to set the perimeter (share or asset deal) and the taxes and years to review, and to request the information from the seller through the data room.
Review and quantify
The review goes tax by tax (CIT, VAT, withholdings, related-party transactions) and covers the years that are not time-barred, identifying contingencies and estimating their likelihood and impact.
Report and contract
The contingency report is issued and the findings are carried into the price, the representations and warranties and the indemnities in the contract.
Tax due diligence checklist in 10 steps
- Scope: define the perimeter, taxes and years to review.
- Information: request documents and open the data room.
- General taxation: review CIT, VAT, withholdings and local taxes.
- Tax years: identify the years not time-barred (4 years) and BINs/deductions (10 years).
- Related-party transactions: analyze transfer pricing and its documentation.
- Contingencies: tax audits, inspection reports, penalties, appeals and ruling requests.
- Succession: assess the acquirer’s liability and the LGT Art. 175(2) certificate.
- Quantification: estimate the likelihood and impact of each risk.
- Report: issue the tax due diligence report.
- Contract: carry the findings into the price, warranties and indemnities.
If you have a deal under way, see our securities market regulation practice or our support with commercial contracts.
Tax due diligence in practice
From data room to contract
A tax due diligence rests on four pieces: scoping the work, reviewing the tax position, quantifying the contingencies and carrying them into the price and the contract. Here is a visual overview of how it works in practice.
1) ScopeScope: perimeter and data room
The starting point is to define the perimeter and request the target’s tax information.
- Share / asset deal
- Taxes and tax years
- Data room
2) ReviewReview: tax by tax
The position on each tax and on related-party transactions is reviewed for the years still open to audit.
- CIT, VAT, withholdings
- Related parties
- BINs and deductions
3) QuantifyQuantify: contingencies
Each risk is assessed by likelihood and impact and ranked in a contingency map.
- Likelihood
- Impact
- Risk map
4) ReflectReflect: in the price and the contract
The report’s findings are reflected in the price, the representations and warranties, the indemnity clauses and, where appropriate, a price holdback (escrow).
Tip: for successor liability, requesting the LGT Art. 175(2) certificate in good time limits the buyer’s risk.
Quick decisionPractical map: what does the DD look at?
Years open to assessment
Right to assess: time-barred after 4 years (LGT Art. 66).
Tax losses and deductions
Can be audited for up to 10 years (LGT Art. 66 bis).
Business succession
Tax debt certificate to limit liability (LGT Art. 175(2)).
Tax due diligence playbook
The tax review, phase by phase
Scope
Define the perimeter, taxes and years, and open the data room.
Work plan and information request list.
Review
Analyze each tax, related-party transactions and the years not time-barred.
List of contingencies identified.
Quantification
Estimate the likelihood and impact of each risk.
Quantified tax risk map.
Report
Document findings, conclusions and recommendations.
Tax due diligence report.
Contract
Carry the findings into the price, warranties, indemnities and escrow.
Contract clauses (SPA).
Common mistakes in tax due diligence
Spot them before you sign the deal.
- Overlooking successor liability and not requesting the LGT Art. 175(2) certificate.
- Reviewing only the 4 years and overlooking BINs and deductions (10 years).
- Underestimating related-party transactions and their documentation.
- Not quantifying contingencies or reflecting them in the price.
- Leaving adequate tax warranties and indemnities out of the contract.
Practical glossary
Key tax due diligence concepts
If you are facing a tax due diligence, these terms come up in the report and in the deal negotiation. Understanding them helps you make informed decisions.
Tax DDBasics
Tax due diligence
Review of the target’s tax position before a transaction, to identify risks and contingencies.
A module of the DD process.
ContingencyRisk
Tax contingency
A tax risk that may turn into a future debt (tax due, interest and penalties).
Quantified by likelihood and impact.
LimitationTime limit
Limitation period (4 years)
General limitation period for the tax authorities’ right to assess the tax debt.
LGT Art. 66.
66 bisTime limit
Audit of tax losses (10 years)
Period to audit tax losses and deductions applied or pending application.
LGT Art. 66 bis.
42(1)(c)Risk
Successor liability
Joint and several liability of the acquirer for the tax debts of the previous owner of the business activity.
LGT Art. 42(1)(c).
175(2)Protection
Tax debt certificate
AEAT certificate that limits the acquirer’s liability to what it states.
LGT Art. 175(2) · 3 months.
Related partiesArea
Related-party transactions
Transactions between related parties, subject to transfer pricing rules and documentation.
High-risk area for adjustments.
R&WContract
Representations and warranties
Statements by the seller on the tax position that trigger compensation if they prove incorrect.
Reps & warranties.
EscrowContract
Indemnity and holdback
Indemnity clause and holdback of part of the price in escrow to cover contingencies.
Deal protection.
Contact
Book a call
Tell us about your deal and we will help you plan the tax due diligence, quantify the contingencies and protect the price and the contract.
What tax due diligence is and why it matters in a transaction
Tax due diligence is the review of a company’s tax position before a corporate or investment transaction (acquisition, entry of investors, financing or stock market listing). Its purpose is to identify and quantify the target’s tax contingencies in order to make the decision, adjust the price and design the contract protections.
What it reviews and which tax years
The review covers corporate income tax, VAT, withholdings and local taxes, related-party transactions (transfer pricing) and open contingencies. As for the time frame, the tax authorities’ right to assess the tax debt becomes time-barred after four years (Article 66 of Law 58/2003, the General Tax Law), but the right to audit tax losses and deductions applied or pending application becomes time-barred after ten years (Article 66 bis, introduced by Law 34/2015).
Acquirer’s liability
When a business activity is acquired, the acquirer may be jointly and severally liable for the previous owner’s tax debts through succession to the activity (LGT Art. 42(1)(c)). To limit that risk, the acquirer may ask the AEAT, with the current owner’s consent, for a detailed certificate of tax debts, penalties and liabilities (LGT Art. 175(2)), which the tax authorities must issue within three months and which limits the acquirer’s liability to what it states.
From the report to the contract and the rest of the transaction
The findings are carried into the price, the representations and warranties (reps & warranties), the indemnity clauses and, where appropriate, a price holdback (escrow). Tax due diligence is coordinated with the legal, financial and employment reviews and, in capital markets transactions, fits within the framework of Law 6/2023 on Securities Markets and Investment Services and the information in the prospectus.
Securities market services
Transactions and compliance
Resources and blog
Official sources
Key legislation, linked to the official text:
- Law 58/2003 of December 17, General Tax LawBOE · consolidated text
- Law 6/2023 of March 17 on Securities Markets and Investment ServicesBOE · consolidated text
- Law 27/2014 of November 27 on Corporate Income TaxBOE · consolidated text
Legislation and links reviewed in .