When it comes to preparing for a business sale tax due diligence might be viewed as an afterthought. Tax due diligence results can be critical to the success or failure of a business transaction.
A thorough review of tax laws and regulations can uncover potential deal-breaking issues well before they become a serious issue. It could be anything from the complexity of the financial position of a company to the nuances involved with international compliance.
The tax due diligence process also considers whether a business could create an taxable presence in different countries. For instance, a business in a foreign country could trigger local country income and excise taxes however, despite the fact that there is a treaty between US and the foreign country could mitigate this impact, it’s important to be aware of tax risks and opportunities.
We evaluate the proposed transaction, as well as the company’s acquisition and disposal activities in the past, and review any international compliance issues. (Including FBAR filings) As part of our tax due diligence process we also analyze the documentation on transfer pricing as well as the company’s document describing the transfer price. This includes analyzing the assets and liabilities’ tax basis and identifying tax attributes that could be utilized to maximize value.
For instance, a company’s tax the profound impact of VDRs on today’s corporate strategies deductions could be higher than its taxable income, resulting in net operating losses (NOLs). Due diligence can help determine whether these NOLs can be recouped and also the possibility of transferring them to the new owner as a carryforward or used to lower tax liability following the sale. Other tax due diligence items include unclaimed property compliance – which, although not specifically a tax subject is becoming a subject of increasing scrutiny by tax authorities in the state.