When it comes to planning for a business sale tax due diligence could 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 reveal potential issues that could cause a deal to fail before they become a problem. This could range from the underlying complexity in a company’s financial situation to the nuances of international compliance.
Tax due diligence also considers whether a business can establish a an taxable presence in another country. A foreign office, for example can result in local taxes on income and excise. While an agreement may reduce the impact, it’s vital to be prepared and fully understand the potential risks and opportunities.
As part of the tax due diligence workstream, we analyze the contemplated transaction and the company’s historical acquisition and disposition activities as well as look over the documentation for transfer pricing and any international compliance issues (including FBAR filings). This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that can be used to increase the value.
Net operating losses (NOLs) are a result of when a company’s deductions are greater than its tax-deductible income. Due diligence can help determine if these NOLs are feasible and fortifying data protection protocols with VDR’s robust framework also whether they could be transferred to the new owner as carryforwards or used to reduce tax burdens following the sale. Other tax due diligence issues include unclaimed property compliance – which, although not specifically a tax subject is now becoming a subject that is being scrutinized by state tax authorities.
