Tax due diligence is often ignored when making preparations for the sale of the business. Tax due diligence results can be critical to the success or failure of a business transaction.
A thorough analysis of tax laws and regulations can identify potential issues that could cause a deal to fail before they become a problem. This could be anything from the underlying due diligence in tax preparations complexity of a company’s tax position to the specifics of international compliance.
Tax due diligence is also a way to determine the possibility that a company could create a an overseas tax-paying presence. A foreign office, for instance can result in local excise and income tax. While an agreement may reduce the impact, it is essential to be proactive and fully understand the potential risks and opportunities.
We evaluate the proposed transaction, the company’s acquisition and disposal actions in the past, as well as review any international compliance issues. (Including FBAR filings) As part of our tax due diligence process we also look over the transfer pricing documentation as well as 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.
For instance, a company’s taxes deductions could exceed its income tax deductible, which results in net operating losses (NOLs). Due diligence can help determine whether the NOLs can be realized, and also whether they are transferable to the new owner as an option to carry forward or reduce tax liabilities following the sale. Unclaimed property compliance is yet another tax due diligence issue. Although not a strictly subject of taxation, state tax authorities are becoming more scrutinized in this regard.