Due diligence

Tax due diligence in a business acquisition: tax audits, tax risks and indemnity

Tax due diligence in Austria: tax audits, VAT, payroll taxes, loss carryforwards and indemnity in a business acquisition.

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7 July 2026 · Mag. Bernhard Brandauer, Rechtsanwalt

Tax due diligence identifies tax risks in the target company before a business acquisition is signed. It covers tax audits, VAT, payroll taxes, loss carryforwards and open assessments. If these points are discovered only after signing, indemnities and holdbacks are usually negotiated from a weaker position.

This post separates the tax review before signing from the later tax covenant in the acquisition agreement. Detailed tax advice remains with tax advisers; the legal task is to translate findings into warranties, indemnities, closing conditions or purchase price mechanics.

Classify tax review

Where is the tax risk in the target company?

Two questions help prioritise the tax review before signing.

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01 Question 1

Are there ongoing or recently completed tax audits?

Open proceedings, assessments and appeals determine how deeply buyers must review before signing.

All paths at a glance

Overview of all answers.

In a share deal historic tax risks usually remain in the company.

Review corporate tax, VAT, payroll taxes, tax audits and loss carryforwards. The post on tax indemnity and covenants covers the contract layer.

In an asset deal taxes and assets must be allocated item by item.

Review VAT, inventory, receivables and possible liabilities for each transferred element. The distinction is explained in share deal versus asset deal.

The tax review looks manageable but must be evidenced.

Use the due diligence checklist as a frame and record the tax adviser view in writing.

All recommendations at a glance

In a share deal historic tax risks usually remain in the company.

Review corporate tax, VAT, payroll taxes, tax audits and loss carryforwards. The post on tax indemnity and covenants covers the contract layer.

In an asset deal taxes and assets must be allocated item by item.

Review VAT, inventory, receivables and possible liabilities for each transferred element. The distinction is explained in share deal versus asset deal.

The tax review looks manageable but must be evidenced.

Use the due diligence checklist as a frame and record the tax adviser view in writing.

What tax due diligence must deliver before signing

Tax due diligence is a transaction specific review programme. It should identify historic risks, quantify open positions and prepare findings so that they can be used in the acquisition agreement.

Typical areas are corporate tax, income tax, VAT, payroll taxes, municipal taxes, loss carryforwards, tax groups, hidden distributions and pending audits. In an asset deal, allocation of individual assets and VAT treatment add further points.

The tax review must connect with the general due diligence checklist. Tax findings influence price, warranties, indemnities and closing conditions.

Reading tax audits, VAT and loss carryforwards

An ongoing tax audit is not automatically a deal stopper, but it is a clear signal. Buyers should know the period, procedural status, preliminary findings and possible additional payments.

Loss carryforwards may look attractive, but depend on structure, restructuring history and tax requirements. They should not be included in valuation without review.

VAT and payroll taxes are frequent sources of mistakes. Reverse charge, benefits in kind, contractor classification and intra community supplies deserve attention.

Review track

Separate tax finding, contract clause and price effect

Tax topics are often mixed in negotiations. The table separates the layers.

Classification of tax findings into review, contract and price protection
Layer	Typical question	Contract consequence
Review Which tax types and years are affected?	Data room, question list, tax memo
Risk Is the amount known or estimated?	Warranty, indemnity or holdback
Closing Must an assessment be available?	Closing condition or covenant
After closing Who conducts proceedings after closing?	Cooperation, cost and notice duties

Tax assessment should be aligned with tax advisers.

Practical point: Do not leave tax findings as loose emails in the data room. Each material risk needs a decision: accept, price, indemnify or clear before closing.

From tax finding to indemnity or holdback

A concrete tax finding needs a concrete contract consequence. A general warranty that all taxes are paid is rarely enough for known risks.

If the amount remains open, a holdback can help. It should define amount, term, release conditions and dispute mechanics. The distinction from escrow is covered in the post on escrow in M&A.

Frequent questions