When you are making preparations for a business sale tax due diligence might seem like an afterthought. 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 deal-breaking issues prior to they become a problem. This could range from the underlying complexity in a company’s financial situation to the specifics of international compliance.
Tax due diligence also considers whether a business can establish a an taxable presence in another country. A foreign charting the course of due diligence in fintech with VDRs office, for example can trigger local taxes on income and excise. Although treaties can mitigate the consequences, it’s important to be proactive and understand the risks and opportunities.
As part of the tax due diligence process we review the proposed transaction and the company’s past acquisition and disposition activities as well as look over the company’s transfer pricing documentation and any international compliance issues (including FBAR filings). This includes assessing the tax basis of assets and liabilities and identifying any tax attributes that could be used to boost the value.
Net operating losses (NOLs) are a result of when the deductions of a business exceed its taxable income. Due diligence can be used to determine if these NOLs can be realized, and if they can either be transferred to the new owner as tax carryforwards or utilized to reduce tax burdens after a sale. Other tax due diligence aspects include unclaimed property compliance which, while not a specific tax issue, is becoming an area of increased scrutiny by tax authorities of the state.