Tax Due Diligence – Tax Due Diligence Is Crucial to the Success of a Business Sale
Tax due diligence is often omitted when planning for the sale of the business. Tax due diligence results can be critical to the success or failure of a business transaction.
A thorough examination of tax regulations and tax rules can reveal potential issues that could cause a breach before they become a problem. This could be from the underlying complexity in the financials of a company, to the specifics of international compliance.
The tax due diligence process also considers whether a business is able to establish tax-paying presence in other countries. A foreign office, for example, can trigger local tax on excise and income. Even though treaties can mitigate the effects, it is crucial to be proactive and fully understand the potential risks and opportunities.
We evaluate the proposed transaction, the company’s acquisition and disposal activities in the past, and also review any international compliance issues. (Including FBAR filings) As part of our tax due diligence program, we also analyze the transfer pricing documentation as well as the company’s documents relating to the transfer price. This includes analyzing the underlying tax basis of assets and liabilities and identifying tax-related attributes that could be used to maximize valuation.
For instance, a company’s taxes deductions could be higher than its taxable income, resulting in net operating losses (NOLs). Due diligence can help to determine if these NOLs are feasible and if they can be transferred to the new owner as an offset or used to reduce tax liabilities following the sale. Other tax due diligence topics include unclaimed property compliance – which, while not a specific tax issue, is becoming an area that is being scrutinized by state tax authorities.