Due diligence is the systematic investigation into the legal, tax, commercial, and operational aspects of an international counterparty prior to contracting or acquisition. At Musch Legal, we conduct due diligence processes weekly for M&A, JVs, and major collaborations. Thorough due diligence prevents surprises and provides negotiating ammunition. Those who contract without due diligence often also acquire another party's risks.
What is the legal problem? (Why is due diligence essential?)
International cooperation entails hidden risks: ongoing disputes, unknown debts, regulatory issues, IP issues, and sanctions exposure. Without due diligence, you unknowingly assume these risks. In acquisitions, missed issues lead to R&W claims; in JVs and collaborations, to reputational and financial damage. At the same time, due diligence provides room for negotiation regarding price adjustments, indemnities, or escrow.
What does the law say? (Which frameworks require due diligence?)
No law requires due diligence in every context, but various regimes make it indirectly mandatory. CSDDD (Directive (EU) 2024/1760) requires due diligence in the supply chain regarding human rights and the environment. The Anti-Money Laundering Act (Wwft) mandates KYC for financial service providers and notaries. Section 7 of the UK Bribery Act 2010 requires adequate procedures, including due diligence, on agents. For M&A, due diligence forms the basis for R&W under Section 6:228 of the Dutch Civil Code and CISG.
For sanctions screening under Regulation 833/2014, screening of the counterparty is effectively mandatory.
Type DD
Subject matter
Processing time
Legal DD M&A
Contracts, disputes, IP, compliance
4-8 weeks
Financial DD
Accounting, EBITDA, debts
3-6 weeks
Tax DD
Corporate income tax, VAT, social security contributions charges, international structure
3-6 weeks
Commercial DD
Market, customers, suppliers
4-6 weeks
KYC/sanction
UBO, sanctions lists, PEP
1-3 days
Type DD
Subject
Processing time
Legal DD M&A
Contracts, disputes, IP, compliance
4-8 weeks
Financial DD
Accounting, EBITDA, debts
3-6 weeks
Tax DD
Corporate Income Tax, VAT, social security contributions, international structure
3-6 weeks
Commercial DD
Market, customers, suppliers
4-6 weeks
KYC/sanctions
UBO, sanctions lists, PEP
1-3 days
What risks do companies face? (What goes wrong without a DD?)
Unknown tax obligations, ongoing disputes, defective IP rights, and sanctions exposure can cost millions after closing. In JVs and partnerships, reputational damage to a partner can impact your own brand. Under CSDDD, liability for human rights violations in the supply chain. Under the Wwft, fines for insufficient KYC. In M&A: price adjustment or even nullity in the event of hidden material defects under Article 6:228 of the Dutch Civil Code (misrepresentation).
Practical example from our practice (How did we uncover a tax bomb?)
Musch Legal performed legal and tax due diligence for a Dutch buyer of a Belgian company for 12 million euros. Our analysis revealed a tax claim of 2.1 million euros that had not been disclosed. We negotiated a price adjustment of 1.8 million euros plus tax indemnity with escrow. For subsequent clients, we built a standard DD package that yields corrections for clients averaging 8-15 percent of the transaction value.
What can you do? (Which DD do you perform?)
Build a fixed DD checklist per transaction type (M&A, JV, framework agreement, agency). Combine legal, financial, tax, and commercial DD. For M&A: standard data room with Q&A. For agent or distributor: KYC plus anti-corruption due diligence under OECD guidelines. Document everything for R&W and compliance evidence. Engage Musch Legal with a tax specialist and accountant for the complete process.
Representations & Warranties explained