Financial and fiscal due diligence activity

CARAVATI PAGANI’s due diligence activities cover many areas. This is carried out mainly in the tax and accounting area, but also in the contractual and corporate area. The activity consists of an analysis of economic, equity and financial data in order to make the client aware of the potential risks associated with the decision to make a significant investment.

Through the Partners of the Firm, we operate in the areas of labour law, reputation and credit portfolio. Each of these areas requires a careful and competent identification of the areas of tax risk and of any aspect relevant to the transaction to be undertaken. The correct interpretation and application of the regulations in force is naturally one of the aspects we deal with for our Clients.There are many areas in which CARAVATI PAGANI conducts its due diligence activities. This activity occurs mainly in the field of taxation and accounting, but also in the contractual and corporate field. The activity consists of an analysis of economic, equity and financial data in order to make the client aware of the potential risks associated with the decision to make a significant investment.

Through the Partners of the Firm, we operate in the areas of labour law, reputation and credit portfolio. Each of these areas requires a careful and competent identification of the areas of tax risk and of any aspect relevant to the transaction to be undertaken. The correct interpretation and application of the applicable regulations is naturally one of the aspects we deal with for our Clients.

WHAT IS MEANT BY THE EXPRESSION DUE DILIGENCE?

The expression due diligence is commonly used to refer to all investigations and inquiries into information relating to the subject matter of a negotiation. It derives from the Latin debita diligentia, which means “investigation carried out with the diligence due to the specific case”. We perform this activity with the purpose to collect and verify information of patrimonial, fiscal, managerial and economic nature about a company. Through this investigation, we evaluate for our clients the convenience and risks of a business deal. This analysis is crucial for every investor before acquiring an asset in order to establish elements of feasibility or criticality in relation to extraordinary operations. In addition to the asset analysis, tax due diligence is also essential in order to find out about any elements of risk and criticality not highlighted by the seller.

When does an expert in due diligence need to be consulted?

Negotiations requiring the assistance of a due diligence consultant may concern:

• the negotiation of terms and conditions of a deal,
• arranging appropriate security, indemnity and compensation instruments.

These and other activities recur in the life of a business on the occasion of:

• acquisition and sale of companies;
• issue of financial instruments.

Various stages of due diligence

Investigations may take place during different stages of the negotiation, before, during or after the deal is concluded:

• the investigation activity prior to the conclusion of the deal focuses on the salient features of the negotiation. It is usually initiated by the prospective buyer and carried out on an adversarial basis and with the participation of the seller. The results influence the choice to conclude the deal and its terms;
• post- and pre-closing reviews are carried out when a contract already binds the parties but is not final. In such a case, the investigation activity is concerned with verifying the data acquired and directing subsequent negotiations;
• the post-closing investigation operations carried out after the conclusion of the contract allow the buyer to get to know the acquired asset in depth. In practice, checklists are common, i.e. the list of documents, information and data that the prospective buyer asks the seller to consult.

CHECKS AND CONTROLS FOR EXTRAORDINARY OPERATIONS

Tax due diligence, i.e. assessing and controlling the tax status of the company, becomes a key analysis to determine possible liability risks in case of extraordinary transactions. Examples are mergers, disposals or acquisitions. The objective of the activity is to assess the feasibility of certain operations, collecting information of a financial and economic nature of the Company under examination. The strengths and weaknesses of the transaction are then assessed in order to minimise the chances of either party being harmed.

In summary, the control on the “fiscal status” of the Company checks:

• areas of tax risk;
• potential tax liabilities not disclosed by the seller.

It can be divided into two phases:

• the pre-transaction phase. It includes tax checks on declarations, tax payments, ongoing and potential litigation;
• The post-transaction phase. This is carried out after the extraordinary transaction has been completed due to changes in the negotiated price or for the assessment of the resulting status of the Company.

DUE DILIGENCE FOR FOREIGN CLIENTS

Our Firm’s team of due diligence experts is able to investigate and investigate in depth information related to the subject of an international negotiation. Our staff’s competence in tax, accounting, contractual and corporate matters allows them to assist foreign clients in transactions in Italy. Availing of the advice of an expert in this field allows the foreign investor to be aware of the potential risks associated with such a transaction in Italy. Together with the foreign client, we establish the feasibility or critical elements of each negotiation.