If you’re searching for a tax due diligence checklist right now, you’re probably in the middle of a live deal.

Maybe you’re buying a company, carving out a business line, or backing a roll-up. There’s a term sheet on the table, timelines are tight, and you’re thinking:

“What hidden tax issues am I about to inherit—and how do I surface them before it’s too late?”

You’re not being paranoid. Tax due diligence is consistently ranked right behind financial and legal as a core workstream in M&A, and it’s become even more critical as rules around global minimum tax and cross-border structures tighten.

This guide is meant to be that calm, complete checklist you wish someone had handed you on day one.

What M&A Tax Due Diligence Is Really For

At a high level, M&A tax due diligence has three jobs:

Find historic exposures – underpaid taxes, aggressive positions, audit risks, missing filings.
Understand future tax profile – how the target’s tax footprint behaves once it’s under your ownership and structure.
Inform deal structure and protection – pricing, share vs asset deal, covenants, indemnities, escrows, and warranty & indemnity (W&I) insurance.

Practitioners often break the work into:

an information request list,
interviews with management/advisers, and
quantitative analysis/modelling of exposures and attributes.

In 2025, you also have to overlay new global minimum tax rules (Pillar Two / BEPS 2.0) and rapidly changing enforcement environments in many jurisdictions.

Think of tax DD as a focused x-ray of the target's past and future tax life—not as a box-ticking exercise. Peony provides AI-native data rooms with instant Q&A and question analytics to streamline tax due diligence.

The Core Tax Due Diligence Checklist (8 Pillars)

You can adapt this to any jurisdiction, but the logic stays the same.

1. Corporate Income Tax Compliance & Liabilities

Start with the basics:

Returns & payments – obtain corporate income tax returns for at least 3–5 years, plus assessments, payments, and correspondence with tax authorities.
Open audits & disputes – understand what’s under examination, how material it is, and whether positions taken are defendable.
Uncertain tax positions – review reserves, technical memos, and external opinions.
Historic restructurings – mergers, spin-offs, debt restructurings, or changes in accounting methods that may have lingering tax effects.

Your goal: is the target broadly compliant, or are there skeletons (like non-filed returns, aggressive loss utilizations, or "creative" positions) that could crystallize post-closing? Secure document sharing platforms provide identity-bound access and watermarking for secure tax document sharing.

2. Indirect Taxes: VAT, GST, Sales & Use, Customs

Indirect taxes are often where nasty surprises hide:

Registrations & nexus – where is the target registered for VAT/sales tax, and where should it be registered based on actual activities?
Returns & reconciliations – review a sample of returns, check that reported taxable base ties to revenues in the financials.
Treatment of key revenue streams – cross-border supplies, digital services, marketplaces, exempt vs taxable activities.
Customs & duties – classification, valuation, and origin for major imports; any past customs disputes.

A business that's grown quickly across borders or into e-commerce can easily build up large unrecorded indirect tax exposures. Peony provides secure data rooms with analytics to track indirect tax document access and engagement.

3. Employment, Payroll & Social Taxes

Here you’re looking at:

Payroll tax filings and payments – consistency across entities and locations.
Worker classification – employees vs contractors vs agency workers, especially in gig or tech models.
Equity compensation – options, RSUs, phantom plans, and whether income and withholding have been correctly handled.
Mobile employees – executives or key staff working cross-border, triggering unexpected payroll or social security obligations.

Missteps here can create both tax and employment-law exposure, and often need tailored indemnities.

4. International Tax, Permanent Establishment & Withholding

For cross-border groups, this pillar can be the biggest risk driver:

Group structure & flow of income – intercompany financing, royalties, service fees, and supply chains.
Permanent establishment (PE) risk – where activities in a jurisdiction might have created a taxable presence despite no local entity.
Transfer pricing – policies, documentation, and any local file/master file under BEPS standards; past TP audits or adjustments.
Withholding taxes – on dividends, interest, royalties, and service fees; treaty positions and beneficial ownership analysis.

You're asking: does the current structure align with modern substance and anti-avoidance rules, or are you stepping into a BEPS 2.0 minefield? Peony provides AI-native data rooms with instant Q&A so stakeholders can ask natural-language questions about international tax structures and get instant answers with citations.

5. Tax Attributes & Opportunities (NOLs, Credits, Step-Up)

Tax DD is also about upside:

Losses & carryforwards – net operating losses, interest carryforwards, foreign tax credits; expiry and change-of-ownership limits.
Credits & incentives – R&D, investment, employment incentives, regional tax holidays; documentation and ongoing conditions.
Asset basis & step-up potential – how much tax basis exists in key assets, and what a share vs asset deal (or post-deal restructuring) could do for future amortization and depreciation.

Good tax diligence doesn't just detect problems; it feeds into structuring for value creation. Peony provides secure data rooms with question analytics to identify tax attribute opportunities and value creation paths.

6. Global Minimum Tax & BEPS 2.0

From 2024 onward, many jurisdictions have implemented the OECD’s Pillar Two rules—a 15% global minimum effective tax for large multinationals (generally €750m+ global revenue).

For M&A, this means:

Checking whether the group or combined group will be in scope after the deal.
Understanding jurisdictional effective tax rates and potential top-up taxes.
Reviewing new Pillar Two reporting and data requirements, which can be extensive.
Considering how a transaction might change the group’s exposure (e.g., moving entities into low-tax or high-tax jurisdictions).

On top of that, geopolitical shifts—like the G7’s 2025 discussions on “side-by-side” approaches and the U.S. walking away from the original deal—create asymmetry between regions, so you need to understand how your specific footprint is affected.

This is now a standard module in tax due diligence for any group of meaningful size.

7. Tax Agreements, Indemnities & Group Arrangements

Here the checklist includes:

Tax sharing and tax allocation agreements within a group.
Historic SPA tax clauses from past acquisitions that still bind the target.
Group relief / consolidation arrangements, and how exit will impact them.
Existing tax indemnities given or received by the target.

These documents can dramatically change who ultimately bears which tax risk.

8. Processes, Controls & People

Finally, you want to know how tax has been managed:

Who is responsible for tax—internal team vs external advisors.
How returns are prepared, reviewed, and filed.
Use of technology and documented controls.
How the company tracks law changes and responds.

Thomson Reuters and other industry voices emphasize that meaningful tax due diligence includes not just historic numbers, but an assessment of the target’s tax governance and control environment.

If governance is weak, even a "clean" historic file can deteriorate quickly post-closing. Peony provides secure data rooms with identity-bound access, password protection, watermarking, and complete analytics for professional tax due diligence.

Using the Checklist to Shape the Deal

A good tax due diligence exercise doesn’t just spit out a list of findings; it directly shapes:

Purchase price – adjusting for identified exposures or unrecognized benefits.
Structure – share vs asset deals, mergers, or pre-closing carve-outs.
SPA protections – specific tax warranties, indemnities, covenants, and escrows.
Integration plan – how quickly to migrate systems, close entities, or rationalize structures without triggering unexpected tax costs.

You'll usually capture this in a tax DD report or memo that feeds directly into the investment committee paper and SPA negotiations.

Final Thoughts (and a Gentle Disclaimer)

This checklist is a framework, not legal or tax advice. Tax rules are highly jurisdiction-specific, and the stakes in M&A are real. But if you walk into your next deal with these eight pillars in mind, you’ll ask sharper questions, spot issues earlier, and negotiate from a place of calm, informed confidence.

That's ultimately what tax due diligence is buying you: not perfection, but no surprises you could have reasonably avoided.

Common Questions About M&A Tax Due Diligence

How far back should tax due diligence go?

For most deals, buyers review at least the last 3–5 years of returns and assessments, aligning with typical statute of limitation periods in key jurisdictions. Longer lookbacks may be needed where there’s known controversy or historic restructurings.

Do I really need separate tax due diligence if I have financial DD?

Yes. Financial DD will highlight tax lines and maybe high-level exposures, but it’s not designed to test filing positions, nexus, PE issues, indirect taxes, or BEPS/Pillar Two implications in depth. Tax DD uses similar data but asks different, more technical questions.

When is tax DD “overkill” for small deals?

You can scale the depth, but not the discipline. For small, domestic targets, you may focus on core compliance, obvious exposures, and key attributes only—but it’s still worth running a slimmed-down version of this checklist.

Who should lead tax due diligence?

For any deal of meaningful size or complexity, you'll want a specialist: in-house tax, external tax advisors, or both. Their work should be tightly linked to legal and financial DD so findings are consistent and acted on. Use Peony for secure tax due diligence data rooms with AI-native Q&A, question analytics, and secure sharing to accelerate the process.

What is tax due diligence?

Tax due diligence is a structured investigation into a target's historic tax exposures, future tax profile, and deal structure implications. Peony provides AI-native data rooms with instant Q&A, question analytics, identity-bound access, and watermarking to streamline the process.

How do you conduct tax due diligence?

Review corporate income tax compliance, indirect taxes, employment/payroll taxes, international tax structures, tax attributes, BEPS 2.0 implications, tax agreements, and processes/controls. Peony helps: upload all tax documents to a secure data room with AI-native Q&A so stakeholders self-serve questions.

What's the best data room for tax due diligence?

Peony is best: upload tax returns, assessments, agreements, and materials to a secure AI-native data room with instant Q&A, question analytics, identity-bound access, password protection, and watermarking for faster tax due diligence.

Can you see what questions stakeholders ask during tax due diligence?

Most traditional data rooms only show page views. Peony provides complete question analytics: see what stakeholders ask most, which topics cause confusion, and areas that stall deals for proactive follow-ups.

How do you share tax documents securely during due diligence?

Peony is best: upload all tax diligence materials to a secure Peony room with identity-bound access, password protection, watermarking, and tracking, then share one protected link instead of email attachments or Google Drive links.

Streamline Due Diligence

Tax Due Diligence Checklist in 2025: Complete M&A Tax DD Guide