When you are planning for a business sale tax due diligence can seem like an afterthought. Tax due diligence results can be critical to the success or failure of a business transaction.
A thorough review of tax laws and regulations can identify potential issues that could cause a deal to fail before they become a real problem. These can be anything from the fundamental complexity of a company’s tax position to the specifics of international compliance.
Tax due diligence is also a way to determine whether a business can establish a an overseas tax-paying presence. A foreign office, for instance, can trigger local taxes on income and excise. While treaties can mitigate the effects, it is important to be proactive and understand the potential risks and opportunities.
As part of the tax due diligence process, we analyze the contemplated transaction as well as the company’s previous disposal and acquisition activities as well as look over 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 could be used to maximize value.
Net operating losses (NOLs) may occur when a company’s deductions exceed its taxable income. Due diligence can be used to determine if these losses are able to be realized and if they are transferable to the new owner as a tax carryforward or used to reduce tax burdens following a sale. Unclaimed property compliance is yet another tax due diligence item. Although it is not a specific tax issue the state, tax authorities are being scrutinized more in this regard.