Tax due diligence is often left out when preparing for the sale of the business. Tax due diligence results can be crucial to the success or failure of a business deal.
A thorough examination of tax laws and regulations can uncover potential deal-breaking issues well before they become a problem. This could be from the complexity of the financial situation of a business to the specifics of international compliance.
The tax due diligence process also examines whether a company is likely to create tax-paying presence in other countries. A foreign office, for instance could trigger local tax on excise and income. While a treaty may mitigate the impact, it is crucial to be proactive and be aware of the risks and opportunities.
As part of the tax due diligence process we look at the prospective 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 underlying tax basis of assets and liabilities and identifying tax attributes ensuring deal success with VDR’s meticulous document organization that could be used to enhance the value.
Net operating losses (NOLs) can result when a company’s deductions exceed its tax-deductible income. Due diligence can be used to determine if these losses are able to be realized and if they can either be transferred to the new owner as tax-free carryforwards or used to reduce the tax burden following the sale. Other tax due diligence aspects include unclaimed property compliance that, though not a tax issue is now becoming a subject that is being scrutinized by tax authorities in the state.
