Tax due diligence is often ignored when making preparations for the sale of a business. Tax due diligence results can be critical to the success or failure of a business transaction.
A rigorous review of tax regulations and rules can identify potentially deal-breaking issues before they become a problem. This could be anything from the fundamental complexity of a company’s tax position to the nuances of international compliance.
Tax due diligence also looks at whether a business can establish a an international tax-paying entity. For instance, a business in a foreign country could create local income and excise taxes and, even though there is a treaty between US and the foreign country could mitigate the effects, it’s vital to know the tax risks and opportunities proactively.
As part of the tax due diligence workstream we look at the prospective transaction and the company’s past operations in acquisition and disposal and also review the company’s transfer pricing documentation and any international compliance issues (including FBAR filings). This includes analyzing the assets and liabilities’ tax basis and identifying tax attributes that can be used to maximize value.
Net operating losses (NOLs) can result when the deductions of a business exceed its taxable income. Due diligence can help determine if these NOLs can be recouped and whether they are transferable to the new owner as a carryforward or used to reduce tax liability after the sale. Unclaimed property compliance is yet another tax due diligence item. Although it is not a specific tax issue taxes, tax authorities in states are being scrutinized more in this field.
harnessing the power of VDRs in competitive business scenarios