Tax due diligence is often omitted when planning for the sale of the business. However the results of tax due diligence may be vital to the success of a sale.
A thorough review of tax regulations and rules can uncover potential deal-breaking issues before they become problems. These can be anything from the basic complexity of a company’s tax structure to the nuances of international compliance.
Tax due diligence also looks at the possibility that a company could create a taxable presence abroad. A foreign office, for example can result in local excise and income tax. While a treaty may mitigate the effects, it is vital to be prepared and be aware of the potential risks and opportunities.
As part of the tax due diligence process We analyze the planned transaction as well as the company’s previous transactions in the areas of acquisition and disposal as well as review the documentation for transfer pricing and any international compliance issues (including FBAR filings). This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that could be utilized to maximize value.
For instance, a business’s tax deductions may exceed its income taxable, leading to net operating losses (NOLs). Due diligence can help to determine whether the NOLs can be realized, and also whether they could be transferred to the new owner as carryforwards or used to reduce tax burdens following the sale. Unclaimed property compliance is yet another tax due diligence item. While it isn’t a topic of tax however, state tax authorities are becoming more scrutinized in this regard.
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