When you are planning for a business sale tax due diligence could be viewed as an afterthought. However, the results of tax due diligence may be vital to the success of a deal.
A rigorous review of tax regulations and rules could reveal issues that could be a deal-breaker before they become an issue. They could range from the fundamental complexity of a business’s tax situation to the nuances of international compliance.
The tax due diligence process also considers whether a business has the potential to create tax-paying presence in other countries. A foreign office, for instance can trigger local tax on excise and income. Although an agreement may reduce the effects, it is crucial to be proactive and fully understand the risks and opportunities.
We analyze the proposed transaction, the company’s transactions with acquisitions and disposals in the past, as well as review any international compliance issues. (Including FBAR filings) As part of our tax due diligence process, we also examine the transfer pricing documentation and the company’s transfer price documentation. This includes assessing assets and liabilities’ underlying tax basis and identifying tax attributes that could be utilized to maximize value.
Net operating losses (NOLs) are a result of when the deductions of a business exceed its taxable income. Due diligence can help to determine if the NOLs can be realized and also whether they are transferable to the new owner as an offset or used to reduce tax burdens following the sale. Unclaimed property compliance is another tax due diligence issue. Although it is not a specific subject of taxation, state tax authorities are becoming more scrutinized in this field.
