When you are making preparations for a business sale tax due diligence can seem like an afterthought. However, the results of tax due diligence may be crucial to the success of any transaction.
A thorough examination of tax laws and regulations can uncover potential deal-breaking issues well before they become a real problem. These can be anything from the underlying complexity of a company’s tax position to the nuances of international compliance.
Tax due diligence also looks at the possibility of a business creating a taxable presence abroad. A foreign office, for example could trigger local tax on excise and income. Even though a treaty may mitigate the impact, it is important to be proactive and fully understand the risks and opportunities.
We analyze the proposed transaction, as well as the company’s acquisition and disposal activities in the past, as well as review any international compliance issues. (Including FBAR filings) As part of our tax due diligence program, we also analyze the transfer pricing documentation and the company’s document describing the transfer price. This includes analyzing the underlying tax basis of assets and liabilities and identifying tax attributes that could be used to increase the value.
Net operating losses (NOLs) can result when a company’s deductions exceed its tax-deductible income. Due diligence can help determine the extent to which these NOLs are feasible and also whether they are transferable to the new owner as an offset or used to reduce tax liabilities following the sale. Unclaimed property compliance is yet another tax due diligence issue. Although not a strictly subject of taxation however, state tax authorities are the profound impact of VDRs on today’s corporate strategies increasingly scrutinized in this field.