ANNUAL TAX DUE DILIGENCE

Introduction

In today’s evolving tax landscape, businesses face increasing scrutiny from tax authorities, and penalties for non-compliance can be crippling. Annual Tax Due Diligence is a critical service that ensures your business is fully compliant with tax laws, minimizes tax risks, and uncovers tax-saving opportunities. Through proactive and thorough reviews of your tax filings, transactions, and structures, you safeguard your company against penalties, enhance financial planning, and maintain stakeholder trust.

Why Annual Tax Due Diligence Matters

Tax regulations are becoming more stringent, and the cost of non-compliance is rising. Annual Tax Due Diligence offers an in-depth review of your tax matters, ensuring you stay ahead of tax authorities and avoid costly penalties. It covers Direct Taxes, Indirect Taxes, Transfer Pricing, and Comprehensive Tax Diligence, depending on your business needs.

Key Benefits:

1. Risk Mitigation: Identify and minimize tax risks before they escalate.
2. Tax Savings Opportunities: Uncover deductions, credits, and restructuring strategies to reduce tax liabilities.
3. Proactive Compliance: Stay compliant with evolving tax laws, reducing the risk of audits or penalties.
4. Investor and Stakeholder Confidence: Demonstrate a clean, compliant tax position to investors, partners, and regulators.
5. Enhanced Financial Planning: Get clarity on future tax liabilities, leading to better cash flow and financial management.

The Real Cost of Non-Compliance

Non-compliance with tax laws doesn’t just lead to tax liabilities—it also opens the door to hefty penalties and reputational damage.

Examples of Tax Penalties:

1. Corporate Income Tax Penalties:
   • Interest on Delayed Payment: Interest at 1% per month (12% annually) for delays in paying tax.
   • Penalties for Under-reporting Income: Penalties of up to 50-200% of the tax due can be imposed for misreporting or concealing income.
   • Total Potential Cost: For example, underreporting an income of INR 1 crore could lead to a penalty of INR 50 lakhs to INR 2 crores.
2. GST Penalties:
   • Interest on Late Payment: 18% annual interest on unpaid GST.
   • General Penalty: Penalty of INR 10,000 or the amount of tax due, whichever is higher.
   • Incorrect Input Credit Claims: Penalties of up to 100% of the claimed amount.
3. Transfer Pricing Penalties:
   • Failure to Maintain Documentation: Up to 2% of the value of international transactions.
   • Concealment of Income (due to transfer pricing adjustments): Penalties of up to 200% of the tax due on the concealed income.

Impact of Penalties:

• Not only do financial penalties hurt your bottom line, but they also cause reputational damage and strain relationships with regulators and investors. Proactively managing these risks through annual due diligence ensures long-term sustainability.

SERVICE OFFERINGS:

1. Direct Tax Due Diligence:

• Comprehensive review of corporate income tax compliance, ensuring all deductions, exemptions, and tax-saving strategies are maximized.
• Risk identification related to under-reporting, non-compliance, or misreporting of income.
• Fee Range: Starting from 1.0 lakh, depending on the size of your business.

2. Indirect Tax Due Diligence (GST, VAT, etc.):

• Detailed examination of GST compliance, input tax credit claims, and filing accuracy.
• Ensure compliance with indirect tax regulations to avoid interest, penalties, or unnecessary audits.
• Fee Range: Starting from 1.0 lakh,, based on complexity and revenue.

3. Transfer Pricing Due Diligence:

• In-depth review of intercompany transactions and transfer pricing documentation.
• Ensure compliance with arm’s-length principles and avoid transfer pricing adjustments.
• Fee Range: Starting from 1.5 lakhs, depending on the scope of international transactions.

4. Comprehensive Tax Due Diligence (All Services Combined):

• A full-scale tax review, covering direct tax, indirect tax, and transfer pricing.
• This holistic approach ensures every aspect of your tax compliance is in order, minimizing risks and maximizing tax efficiency.
• Fee Range: Starting from 3.0 lakhs, tailored to your business’s needs.

The Due Diligence Process:

1. Initial Review: We begin by assessing your business’s financial statements, tax filings, and transactions.
2. In-depth Analysis: Our experts conduct a thorough review, identifying any risks, discrepancies, or opportunities for tax savings.
3. Reporting & Recommendations: We provide a detailed report with actionable steps to ensure compliance and tax optimization.
4. Ongoing Support: Post-review, we offer ongoing advisory services to ensure you remain compliant with the latest tax regulations.

Why Choose Us for Annual Tax Due Diligence?

When it comes to tax compliance and risk management, it’s crucial to go beyond day-to-day operations. While your internal team or existing tax professionals manage routine tax filings and compliance, engaging an independent third-party review offers a fresh, unbiased perspective, and ensures your tax strategy is robust, accurate, and future-proof. Here’s why you should choose our Annual Tax Due Diligence service:

1. Objective Perspective:
   • Internal tax professionals are deeply embedded in the business, and certain risks or practices may go unnoticed or normalized over time. An independent third party provides an unbiased and fresh perspective, conducting a more thorough and critical examination of all tax matters to identify hidden risks and opportunities.
2. Specialized Expertise:
   • Our team specializes in conducting tax due diligence across various industries. With sector-specific knowledge and the latest regulatory updates, we can identify tax risks, potential savings, and compliance gaps that may be overlooked by in-house teams or regular consultants.
3. Conflict of Interest Avoidance:
   • By using an independent third party, you eliminate the risk of conflict of interest. Internal teams or regular advisors may lack the incentive or ability to highlight risky tax practices. We ensure that tax compliance and risk identification are performed without any internal bias or pressure, safeguarding your business from potential oversights.
4. Thorough Risk Identification:
   • Unlike internal teams that may have competing responsibilities, our independent service focuses solely on identifying tax risks and improvement areas. We ensure that no stone is left unturned, especially when it comes to tax optimization and risk management.
5. Regulatory & Investor Confidence:
   • A third-party tax review enhances your credibility with regulators, investors, and stakeholders by demonstrating a proactive, transparent approach to tax management. It signals your commitment to compliance and optimal tax practices, strengthening your reputation in the market.
6. Supplementing Existing Work:
   • We work alongside your internal team and existing professionals, providing an additional layer of scrutiny and assurance. This approach enhances your overall tax strategy, helping to identify hidden tax-saving opportunities that may not be readily visible within your internal processes.
7. Proactive Risk Management:
   • Tax laws are evolving, and it’s critical to stay ahead. Don’t wait for tax authorities to catch you off guard. With our due diligence service, you can be proactive, safeguarding your business from penalties and audits before they happen.
8. Tailored Solutions:
   • Our services are customized to meet the specific needs of your business, whether you’re an SME, a large corporation, or a multinational. We tailor our approach to fit your size, complexity, and industry requirements, ensuring that your tax compliance is thorough and optimized.

Engaging us for Annual Tax Due Diligence ensures that your business is safeguarded from tax risks, benefits from fresh insights, and is equipped to handle evolving regulations. With our specialized expertise, objective review, and tailored solutions, we provide the proactive management necessary for both compliance and cost savings, while enhancing trust with regulators and stakeholders.

Conclusion

In today’s dynamic tax environment, proactive management through Annual Tax Due Diligence ensures that your business remains compliant, avoids costly penalties, and takes advantage of tax-saving opportunities. By addressing potential risks before they escalate, you safeguard your financial future and strengthen your business’s foundation.

As the famous proverb goes, “A stitch in time saves nine.” This perfectly encapsulates the essence of annual tax due diligence—by addressing tax issues early, you prevent larger problems down the road, saving both time and money while protecting your business from unnecessary risks.

Now is the time to act—ensure your business is fully prepared for any tax challenges ahead..

Author :  V S MALLIK

Advocate : Tax Litigation & Strategic Advisory Services

JURIS PRIME LAW SERVICES