Best Practices for Remote Due Diligence

The tax service insists that companies must carefully check counterparties for reliability before agreeing. Otherwise, they run the risk of falling for unreliable partners and incurring additional taxes and fines.

The COVID-19 pandemic has made this procedure also possible online. Many users can now resort to Remote Due Diligence. What data is checked and what services are available for this – read on.

Basic check

The easiest way to check the business reputation of a counterparty is to find information about him in search engines. Having your website is a good indicator, but its absence does not make the counterparty risky or unscrupulous. It is necessary to check for reviews on the Internet about the activities of the company. This will give a superficial understanding of whether you want to work with this company.

When one individual is a member and director of several companies, and also with one line of activity, it is worth considering why this was done. There can be a lot of options – from a potentially “nominal” director to a banal fraud.

After that, it is worth checking the company and its officials in the register of debtors or the availability of data in the automated system of enforcement proceedings. This will display information about court decisions that are already being implemented.

Ideally, it would be to find out if the counterparty has the necessary equipment, personnel, etc. Only the counterparty owns such information. You can request it but remember: he is not obliged to provide it, since documents related to the business activities of the company may be trade secrets.

But the presence of court decisions in the framework of criminal proceedings causes an ambiguous reaction. Personal experience shows that a completely respectable business can be repeatedly subjected to pressure from law enforcement agencies, and yet it is more alive than all living ones. Therefore, it is necessary to approach it deliberately and not make imprudent decisions about the negative reputation of the counterparty. Sometimes this is just a sign of business success.

Detailed check

The second stage of the verification is more detailed and is aimed at really close cooperation with the counterparty. It involves analysis:

  1. Audit reports (if any), in particular, you should provide us with information on the compliance of the financial statements with the actual state of affairs of the counterparty.
  2. Financial statements for several years with transcripts of articles. At a minimum, one can understand such important indicators as “net worth”, accounts payable, and the availability of fixed assets.
  3. Property lease agreements and data on the availability of labor resources. In this case, you can be sure that in tax disputes you will be able to assert and support your position with documents about the “reality” of the counterparty.
  4. Data on debt to banks and the budget, in this case, you can understand the state of “financial health” of the counterparty.

Access to such documents is possible after signing the so-called NDA, but it is better than not knowing your counterparty.

The final stage of the verification will be the exchange of letters from the counterparty, including guarantee ones, for:

    • Availability of all necessary powers for the conclusion of contracts (in addition to the decision of the participants).
    • Availability of fixed assets and labor resources to fulfill the terms of the contract.
    • Availability of copies of all permits (licenses, permits, certificates, copies of technical passports for transport, etc.).

Remote Due Diligence Services

You can use Remote Due Diligence services from vendors such as RPS GROUP, Digital Frontiers Institute, Accion Venture Lab.

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How remote Due Diligence is carried out