Tax due diligence is often ignored when making preparations for the sale of an enterprise. Tax due diligence results can be crucial to the success or failure of a business transaction.
A thorough study of tax laws and regulations can reveal potential issues that could cause a deal to fail before they become a problem. This could be from the underlying complexity in the financial position of a company to the subtleties involved with international compliance.
Tax due diligence also considers whether a business can establish a an overseas tax-paying presence. For instance, a place of business in a foreign country could trigger local country taxation of excise and income taxes and, even though there is a treaty between US and the foreign jurisdiction might mitigate the impact, it’s crucial to recognize the tax risk and opportunities proactively.
As part of the tax due diligence workstream, we analyze the contemplated transaction and the company’s past transactions in the areas of acquisition and disposal and review 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 utilized to maximize the value.
For instance, a company’s tax deductions might be greater than its taxable income, resulting in net operating losses (NOLs). Due diligence can help determine whether the NOLs can be realized and whether they are transferable to the new owner as carryforwards or used to lower tax liability following the sale. Other tax due diligence issues include unclaimed property compliance – which, although not a tax issue, is becoming an area of increased scrutiny by tax authorities of the state.
Comments are closed.