Tax due diligence is often overlooked 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 study of tax laws and regulations can reveal potential deal-breaking issues well before they become a real problem. This can range from the basic complexity of the financials of a company, to the nuances of international compliance.
Tax due diligence also considers the possibility that a company could create a an international tax-paying entity. A foreign office, for instance can trigger local tax on excise and income. Even though treaties can mitigate the impact, it’s crucial to be proactive and be aware of the potential risks and opportunities.
We analyze the proposed transaction, the company’s acquisition and disposal practices in the past, and also review any international compliance issues. (Including FBAR filings) As part of our tax due diligence workstream we also analyze the documentation on transfer pricing as well as the company’s document describing the transfer price. This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that could be used to maximize value.
Net operating losses (NOLs) are a result of when a company’s deductions exceed its taxable income. Due diligence can help determine whether these NOLs are realizable, 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 another tax due diligence item. Although not a strictly tax subject, state tax authorities are increasingly scrutinized in this area.
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