When it comes to planning for a business sale tax due diligence might seem like a last-minute thought. However, the results of tax due diligence may be crucial to the success of a sale.
A thorough examination of tax regulations and tax rules can identify potentially deal-breaking issues before they become problematic. They could range data room and its support for modern businesses from the fundamental complexity of a company’s tax structure to the nuances of international compliance.
Tax due diligence also considers whether a business can establish a an taxable presence in another country. A foreign office, for example can result in local excise and income tax. While treaties can mitigate the impact, it’s vital to be prepared and understand the risks and opportunities.
As part of the tax due diligence workstream we look at the prospective deal and the company’s prior operations in acquisition and disposal and also review the company’s transfer pricing documentation and any international compliance issues (including FBAR filings). This includes analyzing the underlying tax basis of assets and liabilities and identifying any tax attributes that could be used to maximize valuation.
For example, a company’s tax deductions could exceed its income tax deductible, which results in net operating losses (NOLs). Due diligence can be used to determine if the NOLs are able to be realized and if they can either be transferred to the new owner as tax-free carryforwards or used to reduce tax liabilities following a sale. Unclaimed property compliance is another tax due diligence issue. Although it is not a specific topic of tax, state tax authorities are being scrutinized more in this area.
