When a company is disposed of by way of a sale of its shares, its 'history', including its tax history, is transferred along with the shares. Tax due diligence aims to identify any contingent or hidden tax or commercial liabilities which may potentially fall on the purchaser in future. If the due diligence uncovers material potential tax risks / liabilities, this may lead to a price reduction or alter the structure of the deal. In a worst-case scenario, it may even cause the deal to abort.

In addition to due diligence, the purchaser will seek to minimise their exposure through the use of warranties and indemnities in the Sale and Purchase Agreement. A company's tax 'attributes' may also be transferred, for example losses and capital allowance pools, subject to anti-avoidance rules which are considered further below.

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