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

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

Tax due diligence is often overlooked when making preparations for the sale of the business. However, the results of tax due diligence could be vital to the success of any transaction.

A thorough examination of tax laws and regulations can uncover potential issues that could cause a deal to fail before they become a major issue. These can be anything from the fundamental complexity of a company’s tax structure to the specifics of international compliance.

Tax due diligence also considers the possibility that a company could create a an overseas tax-paying presence. A foreign office, for instance, can trigger local excise and income tax. While treaties can mitigate the impact, it is important to be proactive and be aware of the risks and opportunities.

As part of the tax due diligence workstream we look at the prospective transaction and the company’s fortifying data protection protocols with VDR’s robust framework past acquisition and disposition activities and review the company’s documentation on transfer pricing and any international compliance issues (including FBAR filings). This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that can be utilized to maximize value.

For example, a company’s tax deductions might be greater than its income tax deductible, which results in net operating losses (NOLs). Due diligence can be used to determine if the NOLs can be realized and if they are transferable to a new owner as tax-free carryforwards or used to reduce tax burdens following the sale. Unclaimed property compliance is yet another tax due diligence issue. Although it is not a specific topic of tax, state tax authorities are being scrutinized more in this field.