New Trends And Challenges In Tax Due Diligence On The M&A Market

Tax due diligence remains a critical element in M&A (mergers and acquisitions) transactions, serving as the foundation for risk identification and informed decision-making. In recent years, several new developments and challenges have emerged in this field, requiring new approaches and expertise from both advisors and transaction participants.

1. The Rise of Artificial Intelligence (AI)

AI-based tools are playing an increasingly significant role in tax due diligence processes. These technologies can rapidly and automatically process large volumes of contracts, invoices, and other documents, identify risks, and uncover hidden connections. The use of AI accelerates due diligence, reduces the likelihood of errors, and enables more targeted, in-depth investigations. This trend is particularly pronounced in the technology, data-driven, and financial sectors.

2. Digitalization and Virtual Data Rooms

Digitalization continues to be a key theme: parties are increasingly sharing necessary documents in digital, traceable virtual data rooms. This not only speeds up the process but also enhances transparency from a compliance and audit perspective. Alongside digitalization, cybersecurity risk assessment has become an indispensable part of almost every due diligence exercise.

3. Regulatory Changes and the 2026 Tax Package

The 2026 tax package introduces several important changes that significantly impact international M&A transactions:

• Transfer Pricing: The use of the median of the arm's-length range for related-party transactions is now mandatory, and new rules clarify how subsequent price adjustments are handled.
• Global Minimum Tax (Pillar Two): Multinational groups with annual consolidated revenue above EUR 750 million are now subject to a minimum 15% effective tax rate in every jurisdiction, with new reporting and compliance obligations.
• R&D and Green Incentives: Enhanced and tiered tax incentives for R\&D and environmental investments may influence deal structuring and post-acquisition integration.
• VAT and Small Business Tax: Higher VAT exemption thresholds and expanded eligibility for small business tax regimes (KIVA) may affect the attractiveness and structuring of smaller targets.
• Crypto-Asset Taxation: Losses from crypto transactions can now be carried forward indefinitely, and new rules clarify the tax treatment of digital assets.
• Administrative Simplification: Ongoing digitalization and harmonization with EU law aim to reduce administrative burdens and increase transparency.

These changes require more thorough due diligence, careful planning, and may necessitate restructuring to ensure compliance and optimize outcomes in cross-border deals.

4. Vendor Due Diligence: Proactive Risk Management and Strategic Advantages

Vendor due diligence (VDD) is becoming increasingly prevalent in M&A transactions, as sellers seek to enter the market with greater transparency and control over the process. One of the key benefits of VDD is the ability to identify and address tax risks before negotiations with potential buyers begin.

By conducting a thorough tax due diligence on the sell-side, the seller can proactively manage and, in many cases, mitigate a significant portion of the identified tax risks. This can be achieved through various means, such as restructuring certain transactions, correcting past compliance issues, or—most notably—obtaining a ruling or official guidance from the tax authority (tax authority ruling).

Securing a tax authority ruling on specific, potentially contentious issues provides legal certainty and can effectively eliminate or significantly reduce the risk associated with those matters. This not only reassures potential buyers but also substantially strengthens the seller's negotiating position. With documented, officially recognized risk mitigation in place, the seller is better positioned to defend the transaction value, avoid price reductions, and accelerate the deal process.

Furthermore, a well-executed vendor due diligence report, supported by tax authority guidance, demonstrates professionalism and transparency, fostering trust and confidence among prospective buyers. It can also streamline negotiations, as buyers are less likely to demand extensive warranties or indemnities for tax matters that have already been clarified and resolved.

In summary, vendor due diligence is not merely a preparatory exercise but a strategic tool that allows sellers to manage tax risks proactively, enhance deal certainty, and maximize transaction value.

5. Key Sectors: Technology, Energy, and Logistics

The Hungarian and regional M&A markets are most active in the technology, energy, and logistics sectors. In these industries, tax due diligence must address specific risks—such as intellectual property, cybersecurity, and energy efficiency—which require specialized expertise and methodologies.

6. ESG and Sustainability Considerations

A new development is the increasing focus on ESG (environmental, social, and governance) compliance during tax due diligence. The status of sustainability reports, grants, and tax incentives is now frequently examined. This is especially important for international investors, for whom ESG risks are already decisive factors in transaction decisions.

7. Crypto Transactions and Their Tax Treatment

One of the most significant recent developments is the emergence of crypto asset (e.g., bitcoin, ethereum) transactions in due diligence reviews. These transactions carry substantial risks due to ongoing regulatory uncertainty and the lack of established practice. The taxation of crypto transactions varies by country and is subject to frequent changes in Hungary as well. Therefore, it is crucial during due diligence to thoroughly investigate the origin, accounting, tax treatment, and compliance risks associated with crypto assets. Given the uncertain regulatory environment, these transactions can even jeopardize the success of the entire deal if not properly addressed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.