Tax Due Diligence – Tax Due Diligence Is Crucial to the Success of a Business Sale

When it comes to preparing for a business sale, tax due diligence may seem like an afterthought. Tax due diligence results can be crucial to the success or failure of a business deal.

A thorough review of tax laws and regulations can VDRs ensuring seamless and secure cross-border transactions identify possible deal-breaking issues before they become a problem. They could range from the underlying complexity of a company’s tax situation to the specifics of international compliance.

The tax due diligence process also focuses on whether a company is likely to create an taxable presence in different countries. A foreign office, for example could trigger local income and excise tax. Although treaties can mitigate the impact, it is important to be proactive and understand the risks and opportunities.

As part of the tax due diligence process, we analyze the contemplated deal and the company’s prior disposal and acquisition activities 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 any tax-related attributes that could be used to boost the value.

For instance, a business’s tax deductions may exceed its income taxable, leading to net operating losses (NOLs). Due diligence can be used to determine if the NOLs are able to be realized and if they are transferable to the new owner in the form of a tax carryforward or used to reduce tax liabilities following a sale. Other tax due diligence items include unclaimed property compliance – which, while not a specific tax issue is becoming a subject that is being scrutinized by state tax authorities.