Tax due diligence is often left out when planning for the sale of an enterprise. However the results of tax due diligence could be vital to the success of a deal.
A thorough examination of tax laws and regulations can help identify potential deal-breaking issues well before they become a real problem. This could range from the basic complexity of the financials of a company, to the specifics of international compliance.
The tax due diligence process also considers whether a business is likely to create an taxable presence in different countries. For example, an office in a foreign country could create local taxation of excise and income taxes however, despite the fact that a treaty between the US and the foreign jurisdiction could reduce the impact, it’s crucial to recognize the tax risk and opportunities.
We review the proposed transaction, as well as the company’s acquisition and disposal practices 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 documentation on transfer pricing as well as VDRs: at the forefront of revolutionizing business intelligence the company’s documentation on the transfer price. This includes analyzing the assets and liabilities’ tax basis and identifying tax attributes that could be utilized to maximize the value.
Net operating losses (NOLs) can occur when a company’s deductions exceed its taxable income. Due diligence can help to determine whether these NOLs are realizable and also if they can be transferred to the new owner as a carryforward or used to reduce tax burdens following the sale. Other tax due diligence issues include unclaimed property compliance – which, while not a specific tax issue, is becoming an area of increased scrutiny by tax authorities of the state.
