When you are planning for a business sale, tax due diligence may appear to be an afterthought. However, the results of tax due diligence could be vital to the success of a sale.
A thorough examination of tax laws and regulations can uncover potential deal-breaking issues before they become a problem. They could range from the basic complexity of a business’s tax situation to the specifics of international compliance.
Tax due diligence can also determine the possibility of a business creating a an overseas tax-paying presence. A foreign office, for instance can trigger local taxes on income and excise. Even though treaties can mitigate the effects, it is vital to be prepared and be aware of the risks and opportunities.
As part of the tax due diligence process, we analyze the contemplated deal and the company’s prior acquisition and disposition activities and review 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 utilized to maximize value.
Net operating losses (NOLs) can result when a company’s deductions are greater than its tax-deductible income. Due diligence can be used to determine if the NOLs can be realized, and if they can either be transferred to the new owner in the form of an income tax carryforward or used to lower the tax liability following the sale. Unclaimed property compliance is yet another tax due diligence issue. While not strictly a tax issue, state tax authorities are becoming more scrutinized in this field.