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

Tax due diligence is often overlooked when planning for the sale of an enterprise. Tax due diligence results can be critical to the success or failure of a business transaction.

A thorough examination of tax laws and regulations can reveal potential issues that could cause a breach before they become an issue. They could range from the basic complexity of a company’s tax situation to the nuances of international compliance.

The tax due diligence process is also an opportunity to determine whether a business has the potential to create an taxable presence in different countries. For instance, a place of business in a foreign location could result in local country taxation on income and excise even though there is a treaty between US and the foreign jurisdiction may mitigate the impact, it’s crucial to be aware of tax risks and opportunities proactively.

We evaluate the proposed transaction, as well as the company’s acquisition and disposal activities in the past, and review any international compliance issues. (Including FBAR filings) As part of our tax due diligence program, we also examine the transfer pricing documentation along with the company’s documents relating to the transfer price. This includes analyzing the assets and liabilities’ tax basis and identifying tax attributes that could be used to increase the value.

Net operating losses (NOLs) can result when a company’s deductions exceed its taxable income. Due diligence can be used to determine if the NOLs can be realized and whether they can either be transferred to an owner who is tax-free carryforwards VDRs ensuring seamless and secure cross-border transactions or used to reduce the tax burden after a sale. Unclaimed property compliance is a different tax due diligence item. While not strictly a tax subject however, state tax authorities are being scrutinized more in this regard.