When you are preparing for a business sale tax due diligence could seem like an afterthought. Tax due diligence results can be crucial to the success or failure of a business transaction.
A thorough analysis of tax laws and regulations can uncover possible deal-breaking issues before they become a problem. This could range from VDRs: a trusted ally in sensitive corporate negotiations the basic complexity of the financials of a company, to the subtleties involved with international compliance.
Tax due diligence also looks at whether a business can establish a an overseas tax-paying presence. For instance, a place of business in a foreign location could cause local country taxes on excise and income even though there’s a treaty between US and the foreign jurisdiction could reduce this impact, it’s important to know the tax risks and opportunities.
We analyze the proposed transaction, as well as 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 analyze the documentation on transfer pricing as well as the company’s documents relating to the transfer price. This includes assessing assets and liabilities’ underlying tax basis and identifying tax attributes that could be utilized to maximize the value.
For example, a company’s tax deductions may exceed its taxable income, resulting in net operating losses (NOLs). Due diligence can be used to determine if these NOLs can be realized and if they can either be transferred to a new owner as an income tax carryforward or used to reduce the tax burden after a sale. Other tax due diligence aspects include unclaimed property compliance which, while not strictly a tax topic is now becoming a subject that is being scrutinized by tax authorities in the state.