When you are preparing for a business sale tax due diligence can seem like a last-minute thought. However, the results of tax due diligence can be crucial to the success of a transaction.
A rigorous review of tax regulations and rules could reveal issues that could be a deal-breaker before they become problems. They could range from the fundamental complexity of a company’s tax structure to the nuances of international compliance.
The tax due diligence process is also an opportunity to determine whether a business could create taxable presence in other countries. For example, an office in a foreign jurisdiction can result in local country income and excise taxes however, despite the fact that there VDRs ensuring seamless and secure cross-border transactions is a treaty between US and the foreign country could mitigate this impact, it’s important to recognize the tax risk and opportunities.
We evaluate the proposed transaction, the company’s acquisition and disposal practices in the past, and review any international compliance issues. (Including FBAR filings) As part of our tax due diligence process, we also examine the transfer pricing documentation along with the company’s transfer price documentation. This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that could be utilized to maximize the value.
Net operating losses (NOLs) can result when a company’s deductions are greater than its taxable income. Due diligence can be used to determine whether these NOLs can be realized, and if they are transferable to the new owner in the form of tax-free carryforwards or used to reduce tax liabilities following the sale. Other tax due diligence aspects include unclaimed property compliance – which, although not a tax issue is now becoming a subject of increased scrutiny by tax authorities of the state.